Business Loan Documents Required

Most banks, NBFCs (non-banking financial companies) and other financial institutions in India provide business loans for entrepreneurs to help them run, grow or expand their businesses. These loans are offered at competitive interest rates and with flexible repayment tenure. However, to avail a business loan, you have to submit some documents as specified by the lender. These documents are used to verify your and your business’s authenticity and to validate the information provided by you at the time of loan application. Based on the verification of these documents, lenders will determine the loan amount, tenure and interest rate of your business loan.

Documents Required to Apply for a Business Loan

Documents for self-employed individuals

  • Identity proof: Passport/ Driving License/ PAN Card/ Voter ID Card.
  • Residence proof: Telephone Bill/ Electricity Bill/ Ration Card/ Passport/ Lease Agreement/ Sales Tax Certificate/ Trade License.
  • Bank statement: For the last 6 months.
  • Income documents: Latest ITR with income computation, Profit & Loss Account and Balance Sheet for the last 2 years (audited by a certified CA).
  • Continuation proof: Trade License/ ITR/ Sales Tax Certificate/ Trade License.

Other documents: Certified copy of Partnership Deed or Sole Proprietorship Declaration, certified true copy of Memorandum and Articles of Association (certified by Director), and Board Resolution (original).

Documents for self-employed - Private Ltd. Companies & Partnership Firms

  • Residence proof: Telephone Bill/ Electricity Bill/ Ration Card/ Passport/ Lease Agreement/ Sales Tax Certificate/ Trade License.
  • Bank statement: For the last 6 months.
  • Income documents: ITR, Balance Sheet, and Profit & Loss Account (audited by CA) of last 2 years.
  • Continuation proof: Trade License/ ITR/ Sales Tax Certificate/ Trade License. 
  • Other documents: PAN Card, Sole Proprietorship Declaration or certified copy of Partnership Deed, certified true copy of Memorandum and Articles of Association (certified by Director), and Board Resolution (original).

Documents for self-employed non-professionals

  • Identity proof: Driving License/ PAN Card/ Voter ID Card/ Passport/ Aadhar Card (PAN Card for Sole Proprietorship).
  • Bank statement: For the last 6 months.
  • Income documents: IT Returns and Sales Tax Returns of last 3 years.

Common documents required for business loan

There are a few mandatory documents that you need to provide for any Business Loan:

  • A duly filled application form along with 2 recent photographs of the primary applicants
  • Identity proof including PAN Card/ Driver's License/ Passport/ Voter's ID, etc.
  • Proof of income, which includes the latest income tax certificates, bank statements, etc. for the period determined by the bank.
  • Audited balance sheet for at least 3 years
  • Address proof such as utility bills, business registration certificate, rental agreement, etc.
  • Proof of ownership of the business, including the declaration of proprietorship, partnership deed, MOUs, etc.
  • Business plan along with projections for the term of the loan in case of new businesses or start-ups
  • Documents associated with the collateral provided, such as property papers, Life Insurance Policies, etc.

Types of Business Loans

There are various types of Business Loans that you can apply for:

  • Overdraft: This is the perfect option for you if you are looking at immediate cash flow. These overdraft loans are usually provided against the current account of the business. In case of a sole proprietorship, you can also get an overdraft facility for your business against the savings account. This facility is provided against the security or based on your repayment history and relationship with the bank. You can utilise the limit available as per your requirement. The interest is only charged on the amount that you make use of and not the whole limit that is extended to you. Once you have made the repayment, the full limit is available to you for use again.
  • Term Loans: As the name suggests, these loans are available for a fixed repayment term. The repayments towards the loan will be made in the form of EMIs or Equated Monthly Instalments. The interest charged on these term loans depends upon a lot of factors, such as the credit score of the business or the individual, the time of business, the collateral provided, and more. The relationship that you share with the bank is also an important factor in determining the amount that is extended to you. Term loans require collateral based on the quantum of finance for start-ups and existing businesses in the micro, medium, and small sectors. However, there are several government-aided schemes that are available with all banks across India. These loans are secured by a credit guarantee cover that ensures that the borrower does not have to provide any collateral.
  • Working Capital: These are short-term loans provided to businesses to cover any immediate requirement of cash for business operations. These loans can be availed separately or against an existing loan or collateral. With working capital loans, the interest is only charged on the amount that is utilised, making it one of the most affordable options to meet immediate cash requirements. You also have the advantage of a lower interest rate in comparison to an overdraft facility that comes with similar features.
  • Invoice Financing: This loan is provided against any outstanding invoice that you have raised for your clients. Pending payments on invoices can lead to cash crunch that may hamper your business. Based on the invoices raised, businesses can get close to 85% of the amount that is pending on the invoice.
  • Equipment Financing: This is a special loan that is provided to help businesses purchase new equipment that is vital for their operations. These loans may require collaterals as per the quantum of financing that you need. In addition to that, the equipment itself is considered a movable asset that is used as primary security against the loan.

Benefits of Applying for a Business Loan

  • The disbursal of the amount is quick: In comparison to most other types of loans, you are able to get quick disbursals on your Business Loan to fund any immediate expenses. You can avail a large quantum of the loan in as little as 48 hours. You just need to ensure that you meet the eligibility criteria provided by the bank and complete the documentation process as required. If you have availed any loan with the bank previously or have a good relationship with the bank, you can get loans in no time for your business.
  • You have easy access to working capital: One of the main advantages of a Business Loan is that you do not have to think twice about investing in new equipment, a new venue, or expanding the business. You can even have an easy cash flow to take care of regular business operations without any issue. As you continue to repay your loan on time, you can also avail a higher working capital for your business.
  • You can get collateral-free loans: There are several instances when you can get a large loan quantum even without any collateral. If the premise of the business is owned by the individual or the primary applicant, for example, additional collateral is not necessary. You can also choose to get special government-aided loan plans that provide credit guarantee schemes. These schemes only require you to pay an annual fee each year without having to worry about providing any collateral against the loan.
  • The interest rate is lower: In comparison to most loans, Business Loans give you the best possible interest rates. This makes Business Loan a much better option than a personal loan when you are looking for funding for your business. If you have a good credit score, you can further negotiate on the Business Loan interest rate to get the best deal for yourself.
  • Tax benefits: Certain Business Loans can also provide you with tax benefits. The interest may be eligible for deductions when you are filing for your IT returns. Make sure that you check with the bank when you are applying for a loan to know about the tax benefits that come with it.
  • These loans are flexible: The only condition for a Business Loan is that you need to use it for business purposes and not for your personal financial requirements. Besides that, the bank does not influence how you make use of the loan amount provided. You can use it for expansion of your business, to make payments towards salaries, manage overheads, purchase equipment, purchase any new equipment, or just about anything that is required for smoother business operations.
  • You retain your profits: Unlike any other form of the investor in your business who can provide the same financial assistance, banks do not look for any portion of your profits. Even as your business continues to grow, the loan terms will remain the same and will make the repayments towards the loans easier over a period of time.
  • Helps you build credit: One of the best ways to build credit is to ensure that you repay these Business Loans on time. The advantage of building credit is that you can get larger financing in the future if needed. This will not only help you improve your business operations but will also be extremely useful if you intend to expand your business.

Things to Consider When Applying for a Business Loan

Here are some factors that you need to consider when you apply for a Business Loan:

  • The market condition or time in business: You need to ensure that your industry provides the scope to generate enough income in order to repay the loan in time. If you are not able to pay your loans back in a timely fashion, it can have a great impact on your credit score and the chances of getting any funding in the future. If you feel like there are chances of a dip in business, it is a good idea to wait it out before you actually apply for that loan.
  • The interest rate and loan terms: This is certainly one of the most important factors in determining whether you can afford a Business Loan or not. You can even use tools like MyMoneyMantra EMI Calculator to check if you can afford the loan based on the interest rate that is charged. You can look for alternatives and other loan schemes that provide a lower interest rate to ensure that you are able to repay the loan. Even the repayment tenure is an important factor to consider. Most banks provide flexibility when it comes to the repayment tenure. However, you must remember that the longer the repayment tenure, the more the amount you will be shelling out towards the interest.
  • The current overheads: Make sure that you list out all the mandatory expenses such as rent and salary. Then, deduct this amount from the income generated by the business. This is the best way to tell if the EMI on loan can be managed without any unwanted burden.
  • Existing loans: If you already have several loans for your business, it is important to understand whether an additional loan is required or not. First, with each loan that you apply for, the credit score goes down. Of course, you can build that up with regular repayments. However, the more the loans, the bigger the repayment that you need to make each month. It is a good idea to make sure that you consolidate a few loans before you apply for a fresh one. You may even consider options like transferring the balance to a more affordable loan plan to reduce the burden of repaying the loan.
  • Eligibility criteria: It is extremely important to consider the eligibility criteria before you apply for a loan. If you are not eligible for a loan, the chances of rejection are higher. This, of course, has a negative impact on your credit score. Therefore, make sure that you check all the eligibility criteria thoroughly and shortlist your loans accordingly.

Business Loan Offers

Get Kotak Mahindra Bank Business Loan up to Rs. 2 Crore online at interest rate starting from 16% p.a.

View and improve your credit score - for free.

Know how good your score is

Get insights on how to improve it

Unlock offers as per your score

chart_15f235bf64 (1).svg

Business Loan Documents Required FAQs

Are business loan documents requirements the same for all lenders?

Most lenders will ask you to submit the same documents to apply for a business loan, including the loan application form, recent photographs, identity proof, address proof, date of birth proof, business plan, income proof and business proof. 

What factors are considered in determining the eligibility for a Business Loan?

When you are applying for a Business Loan, your eligibility is calculated based on the following parameters:

  • The credit score
  • The qualification of the applicant
  • The nature of the business
  • The income and profit generated by the business

Can I make part payments on the loan?

If you generate more income or have access to more funds, it is a good idea to make part payments towards the loan in order to consolidate your debts faster. Some banks will allow you to make part payments on your loan. However, there may be a fee involved. You may also have a restriction on the number of part payments that you can make each month.

Is it possible to foreclose Business Loans?

Usually, foreclosure of loans is an option after you have made payments towards a fixed number of EMIs. Usually, pre-closure of the loan attracts a fee which can be between 2% and 5% of the amount that is outstanding. If the amount is higher than the interest that you will be paying towards the loan, it is a good idea to choose prepayments or to reduce the repayment tenure of the loan instead of foreclosing it. Foreclosure of loans can also have a negative impact on your credit score.

How will repayments towards the loan be made?

You need to make EMI repayments towards the loans by providing an ECS mandate for the current account of the business. You may also be asked to furnish a few post-dated cheques by certain banking institutions.

What if an EMI is missed on loan?

In case your ECS bounces, you will have to pay a fine for the same. In case of a single default or overdue amount, you will be contacted by the bank for a reminder. However, if the default is recurring, it will not only affect your credit score but may also require the assets pledged to the bank to be seized.

How long does it take for the loan to be disbursed?

After you have completed the documentation process, usually the disbursal of the loan may take between 5 and 7 working days.

How to avail overdraft facilities?

Overdraft facilities are usually provided against assets like fixed deposits and LIC policies. The limit extended depends upon the value of the assets that you pledge.

Can I get a Business Loan with a low credit score?

A Business Loan is provided for individuals with low credit scores if there is any collateral security provided against the loan.