The ongoing pandemic has affected many businesses and industries, which has led to struggle to survive the business and loss of jobs. Many people who lost their jobs are switching to entrepreneurship. However, running a startup in such a situation is also challenging.
To overcome such challenges, getting funding for your business would be a wise idea. There are different ways to fund your business. However, getting a business loan is the ideal way. Many banks are now supporting business owners to run a business. Business loans are easy to get approved and take less time to disburse.
If you also want to apply for a business loan, we have made your work easy. In this article, we have discussed eligibility criteria and documents required for a business loan. Read on to know more.
Let us first learn, what is a business loan?
What is a business loan?
A business loan is a capital your bank offers you to improve your business. You repay the amount with interest and fees, usually in EMI.
The type of business loan will depend on your needs such as purchasing assets, basic operating expenses, or working capital. However, the application procedure and eligibility criteria are the same for all types of business loans.
So, let us understand the eligibility criteria for a business loan in India.
Eligibility criteria for a business loan in India
- You must be a resident of India.
- Your age should be between 24 and 65 years.
- You must be running a business for a minimum of 3 years.
It is a basic eligibility criterion for a business loan by all banks. However, your loan approval depends on various factors such as your CIBIL score, income sources, tax payment timelines, and so on. You also need to submit your correct documents to make the approval procedure easy. We have listed the types of documents below.
Documents required for a business loan in India
1. Identity Proof
- This document should have your full name, age, and photo.
- It can be your PAN Card/Driving License/ Passport/Voter ID/Aadhaar Card.
2. Address Proof
- The document that proves that you are a resident of India. It should have your address.
- It could be your Passport/Driving License/Voter ID/Aadhaar Card/Utility Bill/Bank Statement/Bank Account Passbook (Updated and no more than 3 months old).
3. Ownership Proof
- A document that states you own the property or you are a renter.
- It could be your Electricity Bill/Maintenance Bill with Share Certificate/Municipal Tax Bill/Share Certificate.
- If you are using a rented property, you can provide an agreement copy.
4. Business Continuity Proof
- This document needs to prove that you are still running the business.
- It can be Shop and Establishment Certificate/Tax registrations-VAT/Service tax/GST Registrations.
5. Bank Statement
- This document is to show your business transactions.
- You will need the bank statement for the last six months.
6. Income Proof
- This document requires the latest tax audit reports. It should also include your income, balance sheet, and profit & loss computation.
These are the commonly required documents for a business loan by all banks; however, you may be asked to submit more documents, depending on the bank policy.
The eligibility criteria and documents required for a business loan and startup are the same. The Government of India has availed some loan options for startups in India. We have listed them below.
What are the government loan options for startup businesses in India?
The Indian government has availed some loan options for startups in India to encourage entrepreneurs.
They are as follows:
- Mudra Loan Scheme
The scheme is launched by the Government of India to provide loans up to 10 lakh to non-corporate, non-farm small/micro-enterprises.
- National Bank for Agriculture and Rural Development (NABARD)
Multiple schemes under NABARD encourage farmers and small business owners.
- MSME Business Loans
These loans are for micro, small and medium enterprises. They are divided into Working Loan Capital and Term loan.
- Credit Guarantee Scheme (CGS)
The scheme is for small business owners. It makes available collateral-free credit to micro and small enterprise sectors.
- Coir Udyami Yojana
It is a credit-linked subsidy scheme for setting up coir units with project cost up to Rs. 10 lakhs.
- Sustainable Finance Scheme
This scheme funds the sustainable development projects that contribute to energy efficiency and cleaner production but are not covered under the international or bilateral lines of credit.
- Atal Innovation Mission
The scheme promotes innovation and entrepreneurship across the length and breadth of the country.
The above-mentioned loans are for different types of businesses. You can choose depending on your needs. Applying for a business loan is easy; however, take note of a few things while applying for a business loan.
Things to keep in mind when applying for a business loan
- To have a good CIBIL score.
- Be smart while choosing your lender. Every bank has different criteria.
- Keep track of your finances. Audit them frequently.
- Figure out different ways of repaying your loan before applying.
- Apply for one loan at a time.
We hope this article has helped you get an idea of the documents required for a business loan.
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FAQs
Q. How to apply for a business loan?
Ans: There are three ways to apply for a business loan.
- Online through the lender's website.
- You can visit the nearest branch of the bank.
- You can call their customer care and fill up the details.
However, we suggest visiting the branch office to apply for a business loan.
Q. Does credit score matter while applying for a business loan?
Ans: Yes, credit score plays an important role while applying for a business loan.
Q. What is the credit score required for a business loan?
Ans: You need a CIBIL score of 700 and above to be eligible to apply for a business loan. If your CIBIL score is below 700, your bank may ask for additional security to approve your loan. However, this decision is subjective and taken by the bank.
Q. What is the CIBIL score?
Ans: A CIBIL score is a summary of your credit history. It is a three-digit number that ranges between 300 and 900.
Q. Is it easy to get a business loan?
Ans: Getting a business loan approved depends on your eligibility.
Q. What helps in getting a startup loan approved?
Ans: Having a business plan will help you get a startup loan. It should summarise the goals and objectives of your business.
Q. Can a sole proprietor get a business loan?
Ans: Yes, a sole proprietor can get a business loan if they fulfil the eligibility criteria.
Q. What is the procedure to apply for a business loan by a small business?
Ans: The procedure is the same as mentioned above.
Q. What are the types of business loans?
Ans: Business loans are divided into two categories, which include working capital and term loan. Working capital is to fund the day-to-day operations of your business. Whereas, a term loan is for purchasing equipment and machinery.
Q. What is the tenure of a business loan?
Ans: The tenure of a business loan depends on the amount and the type of the loan. It is decided by the lender.
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