What Are The Documents Needed For A Small Business Loan?

Get to know what documents are required before applying for business loan. Check the complete list of small business loan documents and avail it online.

6 Aug,2022 11:48 IST 67 views
What Are The Documents Needed For A Small Business Loan?

A business loan is a convenient way of availing capital to resolve all financial problems. The money secured in the form of a business loan can be used for business expansion, maintaining inventory, paying office rent, hiring staff, purchasing raw materials and also, for starting a new business.

Many banks and non-bank finance companies (NBFCs) offer business loans at attractive interest rates and flexible repayment terms. But each lender has specific requirements and eligibility criteria for loan approval. In addition, borrowers must submit several documents required to qualify for a business loan.

The loan application process in banks and NBFCs involves extensive paperwork. If any required documents are not submitted or if incorrect information is supplied in documents, it could lead to delay and even rejection of loans.

Before applying, it is good to know the list of documents needed for small business loans from banks and NBFCs. Although the exact list may vary from lender to lender, most documents are common.

Application Form

Lenders carefully assess the loan application form of borrowers. No matter how daunting it may appear, filling out the loan application form with correct details is a critical step for loan application, especially for borrowers looking for unsecured business loans. Along with the form, borrowers must give one or two passport-sized photographs.

Proof Of Age

A date of birth certificate, a passport, a PAN card or a voter’s ID can be submitted as valid proof of age.

Proof Of Identity

Be it a secured or an unsecured business loan, personal identification proof like a copy of the applicant’s passport, PAN card, voter's ID card or a driving license is necessary.

Address Proof

A valid address proof of the applicant is essential to securing a loan. Most banks accept any of the following documents as valid address proof: Aadhaar card, voter’s ID, ration card, telephone bill, lease agreement, and electricity bill.

Potential borrowers looking for secured loans can also submit a proof of business address while applying for an SME loan. The business address is the actual location where an individual conducts business. It is a legally recognized document issued to the business owner by a central, state or municipal authority.

Lenders ask for proof of business address to establish that the mentioned business place is the same as informed by the applicant in the loan application process.

Depending on the business condition, a GST certificate, the rental agreement, electricity bills, registration agreement or the property tax receipt can be furnished to the bank for GST-registered businesses.

For small businesses that don’t have GST registration, the following can be submitted as proof of company address:

• CST/ VAT/ Service Tax Certificate;
• Registration certificate issued by municipal authorities, such as Shop & Establishment certificate;
• Self-employed professionals can submit licenses issued by their respective industry regulatory bodies. For example, a license issued by the Medical Council of India to doctors.

Financial Documents

Financial documents needed for small business loans, both secured and unsecured, include income tax returns and bank account statements of the last 6 to 12 months. For unsecured loans, continuity of business proof is helpful at times.

Tax returns from previous years along with computation of income help lenders assess the performance of a business in the past and thereby, arrive at a decision. Some banks also require the balance sheet and profit and loss statements of the business, audited by a chartered accountant, for the most recent two years. The purpose of the balance sheet is to have a fair understanding of the current assets and liabilities of the business.

Lenders, sometimes, want to know how loans are utilized for business plans. If need be, applicants must submit supporting documents of budget and future cash flow projections. For this, borrowers must create two future scenarios; first projecting how a business will perform with no additional financing and second, showing how it can improve a business with the loan.

Along with that, applicants seeking collateral-free loans may also have to submit some additional documents:

• Overdraft sanction letter from their bank;
• Partnership deed (for partnership firms), Memorandum or Association or Articles of Association along with a certificate of incorporation (for companies);
• Tax audit reports.

Conclusion

Lenders need a long list of documents before approving a loan. These documents help them to check the authenticity of information supplied by the applicant. It also helps them to verify the business’s validity and calculate the loan amount, period and rate of interest of the business loan.

A duly filled loan application, supporting KYC documents and financial statements are mandatory for business loan approval. Banks and NBFCs may also take the signature of the applicants on bank statement verification forms to verify the signature.

Irrespective of the loan type, borrowers must arrange all financial documents needed by lenders before applying for a business loan. Documents required for a loan application may differ from bank to bank. Therefore, approaching a trustworthy lender like IIFL Finance can ease the process.

At IIFL Finance, you can secure a business loan at competitive interest rates and flexible repayment terms. For quick approval with minimal documentation, borrowers can apply on the company website or app and get the convenience of online banking service right at their doorstep.

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