Having the right business loan documents is crucial for securing quick approval from lenders. These documents help assess the borrower’s credibility and the business’s financial health. By ensuring that your documentation is complete and accurate, you can avoid unnecessary delays and improve your chances of swift approval. Read on to learn the essential business loan documents you need to increase your chances of getting your business loan approved.
Why Is Documentation Important for Business Loans?
Documentation shows banks and NBFCs that you are organised and accountable and have carefully considered how you will repay the loan. Being unprepared for necessary paperwork is one of the main reasons small business loan applications get rejected.
Having the proper business loan documents ready beforehand provides a clear roadmap through the application process and prevents confusion.
Essential Documents for Business Loans
Here are some essential documents required for a business loan to prevent rejection:
1. Business Plan
A business plan is a document that outlines your business goals, strategies, vision, and financial projections. It is essential because it demonstrates that you understand your business goals and vision for the lending institution.
Components of a Good Business Plan
The following are some of the vital details that your business plan should include:
- Business description - What does your company do, and what products/services are offered?
- Market analysis - Information about your industry, target customers, and competitors.
- Operations plan - How will you manufacture and deliver your products/services?
- Management team - Define the organisation’s key roles and introduce the personnel.
- Financial projections - The estimated startup costs, expenses, sales/revenue, and profit/loss must be clarified.
A good business plan can convince financial institutions that you are a low-risk borrower and increase your chances of getting a loan.
2. Business Registration Documents
Business registration documents help determine a company's legal status. These documents demonstrate to the financial institution that a business operates legally and complies with all applicable regulations.
Types of Documents Required
The following documents are necessary:
- Certificate of Incorporation
- Memorandum of Association
- Articles of Association
- GST registration certificate
- Trade licence
- MSME/Udyog Aadhar registration
3. Tax Return Documents
A business's tax returns are also necessary for financial institutions to assess a company's financial performance. The tax returns disclose the following information about the business:
- Income
- Expenses
- Tax liabilities
4. Financial and Bank Statements of the Company
A financial statement is an essential document that overviews a business's financial health. These business loan documents help the financial institution assess a business's profitability, liquidity, and solvency. Components of financial statements:
- Balance sheet
- Income statement
- Cash flow statement
Financial institutions use the information in your business's bank statements to determine its inflows, outflows, liquidity, and creditworthiness. The following documents are necessary:
- Bank statements for the last 6-12 months
- Balance sheet and P/L statement of your business from the last three years
- Income tax returns for the previous three years
- Audit reports for the last three years (if available)
Submitting these documents helps the financial institution evaluate the borrower's repayment capacity and economic health.
5. Identification Documents
Identification documents are also known as KYC (Know Your Customer) documents. These documents are essential for financial institutions to obtain information about your identity and address and are required to verify your identity. Providing these documents helps the financial institution assess your credibility and trustworthiness and reduces the risk of fraud.
Types of Documents Required
Submitting any two of the below documents is usually sufficient:
- Aadhar card
- PAN card
- Voter ID
- Passport
- Driving license
However, it is best to check with the financial institution to learn their specific requirements. Depending on the borrower's business type and loan amount, the financial institution may ask for additional business loan documents.
6. Personal Financial Statements
For small business loans, banks or NBFCs often review the personal finances of the business owner(s) to indicate creditworthiness. Be prepared to provide:
- Personal tax returns
- Bank account statements
- Details of assets/liabilities
- Credit history/score
7. Collateral Proof
Collateral is an asset you can use as security for a loan. It might be land, equipment, inventory, or receivables. If your company has collateral, you must submit the required paperwork, such as property deeds, title certificates, or invoices. Collateral papers can raise loan acceptance odds by lowering the financial institution's risk. The following are some of the documents of collateral you may require:
- Property deeds
- Vehicle titles
- Equipment/inventory invoices
- Accounts receivable report
The financial institution may require additional documents, depending on the type of collateral.
Conclusion
Preparing for a business loan means having all the proper paperwork ready. Even though gathering business loan documents can feel exhausting, being organised shows you are a responsible borrower, heightening the probability of approval.
Having the essential documents gives you a plan to go through the application smoothly and avoid rejection. They show your business's potential and help you get the money you need.
The application process might differ for each bank or NBFC, but having a business loan application checklist ready sets you on track to get your business loan. You can check eligibility for business loans online for free through eligibility calculators provided by many financial institutions. You can get the funding to reach your goals with the proper paperwork!
FAQs
1. What credit score is needed for a business loan in India?
A credit score of over 750 is ideal. If other parameters are met, 700+ scores have decent approval chances. Below 650 may get approval, but the interest rates might be high.
2. How long does it take to get a business loan approval?
It depends on the lending institution you are applying to. Once all documents are submitted, turnaround time is typically few days to a few weeks.
3. What if my business is less than 3 years old?
New businesses can get loans with reasonably good projections and collateral, and government schemes like CGTMSE aid startup funding.
4. Can I get a loan if my business is making losses?
Funding is more challenging with losses, but it is possible. Strong projections, collateral, and equity infusion can improve chances.
5. What collateral can I offer for a business loan?
Fixed assets like property and machinery can be pledged. Promoters' credits also serve as security. Some schemes offer collateral-free loans.
6. Can I get a pre-approved business loan offer?
Yes, some banks and financial lenders offer pre-approved loans based on relationship history. This enables faster processing if a loan application is submitted.
