What are the Documents Required for a Smooth Business Loan Application in India?

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India is currently witnessing a startup boom, with aspirational entrepreneurs launching innovative business ideas every day. However, funding remains a constraint for many. 

Business loans can be the solution to kickstart your entrepreneurial journey or take your existing business to new heights. Even the Indian Government has launched numerous schemes to help small businesses with collateral-free business loans and offer the much-needed push towards growth. But to avail financing seamlessly, having the right documents in place is crucial.

Let’s look at the key documents lenders require for hassle-free business loan processing in India.

  1. Identity and Address Proof

Standard KYC documents are absolutely essential for any kind of credit evaluation. You will need to submit identity proof and address proof when applying for a business loan. 

  • PAN Card and Aadhaar Card are the most commonly accepted identity proofs. You can also provide your passport, driving licence or voter ID.
  • For address proof, documents like electricity bills, property tax receipts, rent agreement or utility bills in your name are accepted.
  1. Proof of Business

Documents establishing the identity of your business and vintage are needed to ascertain eligibility. 

  • For sole proprietorships, the PAN Card in the proprietor’s name or trade licence is sufficient. Partnership firms should submit their partnership deed. 
  • Private limited companies need to provide Certificate of Incorporation, Memorandum of Association (MOA) and Articles of Association (AOA). 
  1. Income Tax Returns and Financial Statements

Ideally, 2-3 years of income tax returns (ITRs) should be submitted along with the required financial statements.

  • Sole proprietors can provide ITR-4 or ITR-3 if books of accounts are maintained. Balance sheet, profit/loss statement and personal net worth statement will also be needed.
  • Partnership firms and companies have to submit ITR-5 or ITR-6 based on turnover along with balance sheets and profit/loss statements for 2-3 years.
  1. Business Continuity Proof 

Business should have been operational for a minimum period as per lender’s criteria. Relevant registrations and licences should be provided to showcase continuity of business.

For example, GST registration certificate, shop act licence, factory licence, import-export code etc., are some of the documents that you might need to provide, depending on your business type.

  1. Bank Statements

The last 6-12 months’ bank statements of the business account reflecting cash flows and transactions are crucial. Bank statements help assess turnover, creditworthiness and repayment capacity, which are key loan eligibility factors. 

  1. Business Plan

For new businesses and startups, lenders may ask for a business plan or project report outlining the nature of business, promoters’ profile, estimated costs and projected revenue/returns.

This helps establish business viability and prospects. Proforma invoices for machinery, land documents, and quotations should also be provided if applicable.

  1. Documents for Collateral

While many lenders provide collateral-free loans up to certain limits, collateral may be needed for larger loans.

Relevant property documents like sale deed, chain of agreements, mutation etc., need to be submitted if property is offered as collateral. 

For gold loans, the ornament invoice is required. In case of fixed deposits, the FD receipt has to be provided.

  1. Credit Information

Many lenders ask for CIBIL or credit bureau reports to assess past credit behaviour and identify any defaults or high-risk indicators. 

You can also provide credit card statements or details of any loans availed to exhibit a healthy credit profile.

  1. Personal Guarantee

For partnerships and private limited companies, lenders generally take personal guarantees of promoters/directors in addition to business-related documents.

KYC documents and net worth statements of the guarantors have to be provided. Their income tax returns and bank statements may also be needed.

  1. Other Documents

In addition, lenders may require your rent agreement, utility bills, insurance policies, trade references or market reputation details based on their due diligence process.

Provide all documents upfront to ensure faster processing and disbursal. Follow up meticulously if the lender asks for any additional documents.

Final Thoughts

Preparing documents needed for your business loan application well in advance will make the whole process smooth and hasten approval. Proactively consult your chartered accountant and financial advisor to ensure your documents are accurate and adequate.

With digitisation, many lenders now offer pre-approved business loans and real-time processing based on electronic document submission. Avail the benefits of faster credit access by having all documents ready before you click that online application button.

Your dream of running a successful enterprise is just a few documents away!