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 for self-employed individuals
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
Documents for self-employed non-professionals
Common documents required for business loan
There are a few mandatory documents that you need to provide for any Business Loan:
There are various types of Business Loans that you can apply for:
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Here are some factors that you need to consider when you apply for a Business Loan:
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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.
When you are applying for a Business Loan, your eligibility is calculated based on the following parameters:
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.
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.
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.
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.
After you have completed the documentation process, usually the disbursal of the loan may take between 5 and 7 working days.
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.
A Business Loan is provided for individuals with low credit scores if there is any collateral security provided against the loan.