All You Need To Know About Business Loan Documentation

India has established itself as one of the fastest-growing economies in the world over the past few years. A huge part of this growth is because of the vibrant micro, small and medium enterprises (MSMEs) sector.

However, MSMEs face a number of challenges to not only sustain and expand their operations but also to improve their productivity and become globally competitive. All this requires capital.

A business entity needs financial support from its inception. It also needs money for a variety of other purposes, from routine functions such as paying salaries to staff and clearing dues of vendors, to modernizing machinery, and transitioning into efficient technologies and experimenting with new ideas in the marketplace.

In so far as meeting the capital requirements is concerned, the process of starting and growing a business has become easier over the past few years as entrepreneurs now have a wide range of options to secure funds.

Dozens of commercial banks and scores of non-banking finance institutions provide secured and unsecured business loans that can help MSMEs, and even larger companies, to grow their operations.

Main steps to availing a business loan

Most lenders follow a similar process for applying and approving a business loan. However, some specific terms and conditions may vary depending upon a number of factors, such as the amount, tenor and end use of the loan, the borrower’s repayment capability, and whether the loan is backed by collateral.

Application:

The process begins with a borrower selecting a lender and filling in an application process.

Evaluation:

After the application is completed, the lender evaluates it on the basis of various parameters.

Documentation:

The lender checks all the documentation submitted by the borrower to avail the loan.

Approval:

The loan is approved after the lender verifies the borrower’s eligibility and repayment capacity.

Needless to say, a borrower must be fully aware of the documentation involved in taking a business loan so as to avoid any errors. Proper documentation helps both parties—the lender and the borrower—and expedites the sanction and disbursement process.

Documentation for business loans

Before applying for a business loan, it’s prudent for an MSME to apply for registration to government authorities. In recent years, the government has simplified the registration process for MSMEs. Now, MSMEs can get themselves registered with the help of only their permanent account number (PAN) and Aadhaar number.

MSME registration makes it easier for businesses to get a loan from banks and NBFCs. Here are some other documents that they need to apply for a business loan.

To be sure, this is only a basic list. The actual list of documents may vary from lender to lender, and will depend on the borrower’s profile, the amount required and other terms of the loan.

PAN Card:

This is issued by the tax department and is essential for tax purposes.

Identity Proof:

A copy of any of the following documents—Aadhaar Card, Passport, Voter’s ID Card, PAN or Driving License.

Address Proof:

A copy of any of the following documents—Aadhaar Card, Passport, Voter’s ID Card, or Driving License.

Bank Statements:

Typically, lenders ask for the statements for previous six months.

Income Tax Documents:

Latest income tax returns along with balance sheet, and profit and loss accounts.

Proof Of Continuation:

Income tax returns, trade license or GST certificate.

Other Documents:

Company incorporation documents or copy of partnership deed, a copy of company memorandum, articles of association and the board resolution.

Conclusion

MSMEs have a large number of banks and NBFCs to choose from if they want to take on a loan to grow their business. While the basic process for applying for a loan is similar, you should know the documentation process beforehand and keep all the papers ready before you walk into a bank or NBFC branch.

Compared with banks, NBFCs such as IIFL Finance follow an easier process to sanction and disburse a business loan.

In fact, IIFL Finance offers different types of loans to grow your business. These include small-ticket loans of Rs 10 lakh to Rs 30 lakh that don’t require any collateral for bigger loans where you would have to put up security. But irrespective of the amount, tenor, interest rates or other terms, the process of applying for a loan remains hassle-free.