Introduction
Obtaining a business loan can be a business-transforming experience for business owners who want to grow the business, buy equipment, or invest in working capital. Maybe one of the most important things, however, to secure a loan is to have the right paperwork. Having the right paperwork ensures an easy approval and increases the chances of securing the funds needed.
Here, we will present the documents in demand for a business loan, the application process, and the qualification, but most importantly, the tips that will make you a better candidate to be approved.
Understanding Business Loans
Before reaching the document level, the individual should be aware of all the types of accessible business loans:
Types of Business Loans
Term Loans – Single lump sum payment of a set amount plus interest.
Working Capital Loans – Avails the cost of day-to-day business expenses.
MSME Loans – Special Facility for Micro, Small, and Medium Business Units.
Overdraft Facility – Borrowing amount quantified in terms of business turnover.
Invoice Financing – Loans against outstanding invoices.
Equipment Loans – For purchase of equipment or property.
Business Line of Credit – Revolving line of credit on which interest is paid only on borrowed amounts.
Government Business Loans – Subsidized government loans through schemes like Mudra Loans and Stand-Up India.
Business Loan Eligibility Criteria
Fees are deducted from various sources by lenders prior to issuing the loan application. The major drivers of eligibility are explained below:
Business Vintage: The company ought to have had 2-3 years in operation as of most lenders.
Credit Score: Better chances for approval with CIBIL at 700+.
Turnover per Annum: Companies with stable and increasing turnover are likely to obtain loans.
Profitability: The lenders check the profitability and financial position of the company.
Existing Debt: Lower debt-to-income ratio makes the company more loan-worthy.
Collateral (If Required): Assets as collateral are some loans.
Major Documents Required for a Business Loan
Other schools might be slightly different, but these are the most significant documents that are usually required:
1. Business Identity & Legal Documents
Certificate of business registration (in case of sole proprietorship, partnership, or company)
GST registration certificate
Proprietor PAN card or Business owner
Udyam Registration (for MSMEs)
Import Export Code (if applicable)
2. Applicant & Business KYC Documents
Aadhaar card, PAN card, Voter ID, or Passport of the owner/directors
Address verification (utility bill, Lease Agreement, or Property Tax statement)
Bank statement for last 6-12 months
3. Financial Documents
Profit & Loss Statement and Balance Sheet (Recent 2-3 years)
Earlier 2-3 years Income Tax Return (ITR)
GST returns (if applicable)
Loan repayment record (in case there are any pending loans)
4. Business Performance & Bank Statements
Firm’s bank accounts of last 6-12 months
Purchase register and sales invoices
Work orders or contracts (in case of service firms)
5. Collateral Documents (if applicable)
Property documents (if loan is being availed against property)
valuation report on the asset
Information on outstanding loan on the property
Step-by-Step Guide to Obtain a Business Loan
Calculate Your Loan Requirement – How much you require and why you require it.
Select an Appropriate Lender – Compare banks, NBFCs, and online lenders to obtain the best interest rate and terms.
Check Eligibility – Make sure that you qualify with the lender’s requirements before applying.
Obtain Required Documents – Prepare all the required documents prior to sending them.
Submit the Application – Complete the loan application form online or offline. Verification Process – The lender shall then review your documents and determine your creditworthiness.
Approval & Disbursement – The sanctioned loan amount shall be credited to your business account.
Common Reasons for Business Loan Denial
Understanding why loans are being declined can stop you from making mistakes:
Poor Credit Score: Poor ratings mean higher risk.
Poor or incomplete documentation: Inadequate or poor documentation may lead to delayed approval.
Low Turnover per Year: Small revenue-generating businesses might be excluded from loans.
High Existing Debt: If your business has high existing debt, the lenders might not value extending additional loans.
Business Instability: Small new businesses struggle more to obtain loans because they have no financial history.
Tips to Improve Business Loan Approval Chances
Keep a High Credit Score: A CIBIL score above 700 raises the possibility of sanction.
Keep Current Financials: Keep profit & loss accounts and balance sheets current.
Take Appropriate Loan Amount: Take only what your business can repay.
Select the Best Lender: Compare and shop a few lenders.
Keep Tax Compliance: File income tax and GST returns on time.
Provide Collateral (As and When Required): Secured loans shall have lower interest rates and improved chances of approval.
Conclusion A business loan requires planning and documentation. Having all the documents in hand not only hastens the approval process but also makes you eligible for a greater loan amount. Being financially stable, having a good credit score, and being within the eligibility limit will also make you eligible for approval to a great extent. With the above guide, business owners can make the process of obtaining a loan easy and receive money to grow their businesses. For professional business loan compliance and legal support, Legal Dalal is here. Call us now and experience an effortless business loan application process!
