Businesses require the right type of funding to progress and expand. There are various ways to avail financing for your business such as trade finance, credit for business expansion, working capital loans, etc.
While the government has launched multiple initiatives to boost the MSME sector, lenders have also adopted a modern loan processing system. This has made availing of business loans hassle-free and seamless.
The lender will approve the loan to eligible candidates only after the necessary verification and authentication of the required documents. This blog offers a detailed rundown of the crucial documents a business entity has to provide while applying for a loan. Let’s find out more about them!
Documents Required to Apply for a Business Loan
Regardless of the requirements of your business, you will have to provide a set of documents to the financial institution. The list of documents might vary depending on the lenders, the loan applicant type, the profile, and other major factors.
These are 6 primary documents that you have to provide to the lending institution to get a loan for your business organisation:
- Identity Proof
As identity proof, you have to furnish any of the following:
- Aadhaar card
- Voter’s ID card
- Driving licence
- PAN card
You have to also provide the PAN card of the company or firm.
- Address Proof
As proof of address, you can furnish any of these documents:
- Voter’s ID card
- Driving licence
- Aadhaar card
The lender may ask you to furnish these documents for both the company and all its owners.
- Income Proof
As income proof, you need to provide:
- The latest ITR filings denoting the computation of income
- Profit and loss account statement for the last 2 years
- Balance Sheet
Do note that these documents have to be certified or audited by a Chartered Accountant before you submit them.
- Bank Statements
To avail of a loan for your business, you will also need to provide the previous 6 months’ bank statement for the company and as an individual, if required.
- Proof of Continuation of business
As proof of continuation, any of the following documents will suffice:
- Sales Tax Certificate
- Trade License
- Other Necessary Documents
Some of the other mandatory documents that financial institutions may require to approve a business loan are:
- Certified Copy of Partnership Deed or Sole Proprietorship Declaration
- Board Resolution
- Certified true copy of Memorandum and Articles of Association as approved by Company Directors
In addition to this, the financial institution might ask for other documents. Please note that lenders may ask for other Documents Required for Specific Applicant Types
As mentioned earlier, the documents needed for business loan applications will vary for different applicant types. Let’s know the various other documents applicable to each type of applicant:
- Self-employed (Partnership Firms and Private Ltd. Co.)
If you are an owner of a private limited company or a partnership firm, you have to submit these particular documents for getting a business loan:
- Proof of Identity for the Company: To provide proof of identity for the private company, you can provide any of the following documents – Income Tax return, Excise registration, Water or Electricity bill, Registration under Shops and Establishment Act or Memorandum and Articles of Association.
- Proof of the Individual’s Identity: Proof of identity of the authorised signatories along with two directors of the firm has to be submitted. This should include the Managing Director. You can provide the Driving licence, Passport or PAN card, etc.
- Self-employed Non-professionals
Self-employed non-professionals need to provide these specific documents for business loans:
- Proof of individual identity
- Income tax returns for the past 3 years
- GST returns for 3 years
- Proof of identity of sole proprietorship
- Last 6 months’ bank statement
- Copy of creditors statement and age-wise book-debt of last 3 months
- Self-employed Professionals
As a self-employed professional, you have to submit these particular documents:
- Identity Proof Document of Sole Proprietary: Driving licence or PAN card or Passport
- Residential Address Proof of the Sole Proprietor: Voter’s ID card or Ration card
- ID Proof Document of the Sole Proprietorship: PAN card, IT returns, Water bill or Municipal Tax bill
As a business owner looking for funding, you need to keep the above-mentioned documents handy. This will help to save your time, avoid unnecessary hassle and reduce the chances of loan rejection.
Frequently Asked Questions
Do I need to provide any collateral for business loans?
You don’t need to mandatorily provide collateral to avail of a business loan. There are unsecured business loans provided on the basis of the credibility of the company or the person applying.
What credit score is required to apply for a business loan?
A credit score is an essential factor that determines the chances of getting your business loan approved. It is recommended to have a high credit score of more than 700 to get business loan approval easily.
Who can avail of MSME business loans?
MSME loan is offered by various financial institutions to self-employed individuals, micro, small and medium enterprises, start-ups, and various other business entities for meeting regular business requirements and for expansion purposes.
Can LLPs avail of a business loan?
Yes, Limited Liability Partnerships (LLPs) can apply for a business loan, provided they meet all the eligibility requirements and provide the required documents to the lender. Some of the basic documents that they require to furnish are bank statements, identity proofs, income documents, partnership deeds, Memorandum & Articles of Association, etc.
Nishant is a qualified lawyer from NALSAR University of Law, Hyderabad having 7+ years of experience and is the Chief Compliance and Legal Officer at Wint Wealth. He has been working in the finance and wealth management space for the past 5+ years and is an NISM certified mutual fund expert.
He has previously worked for Khaitan & Co and Scripbox.