Small Business Loan: Prerequisites To Avail One

India is a developing nation and owes most of its growth to small and medium-scale businesses (SMEs). A lot of new businesses have started growing, and the culture of start-ups is cultivating amongst the youth of our country. So in the competitive Indian market, where every third person is thinking of some business, the requirement of constant capital inflow has become a necessity for small businesses to survive.

Now, there are a lot of options where an owner may go for a business loan, be it the conventional option of banks or the customer-friendly policies of the NBFCs (Non-Banking Financial Companies). NBFCs are attracting more and more small business with every passing day due to its service and flexible nature.

Now, when you apply for a business loan, there are a few prerequisites. Every business owner needs to satisfy the eligibility criteria to make sure that they fulfil the business loan checklist. Let’s take a look at these pre-requisites:

Documents required for Business Loan Approval

Identity proof in any form, i.e. voter ID card, driving license, PAN card, or any other form of proof issued by the Indian government.

Residence proof also needs to be submitted in the form of an electric bill, landline bill, lease agreement, etc.

Bank statement (of at least last nine months) – a positive and strong bank record help in improving the credibility and thus, increases the chance of getting the loan sanctioned in a rather hassle-free manner.

Information regarding Income tax Return (ITR), balance sheet, and the profit and loss account.

Documents showing the financial record of the past two years.

Application form which must be completed and submitted along with one photograph (usually passport size).

Eligibility Criteria for Business Loans

Age of the applicant should be between 25 to 65 years.

The business loan must be applied for an ongoing business only.

The business should have a positive turnover over the past two years.

Minimum turnover of Rs. 7.5 lakh a year (specific to some NBFCs only).

Flexi business loans and other such loans are the last rays of hope for SMEs and MSMEs. However, banks make it tough for small business owners to get the loans sanctioned by their strict terms and conditions.

On the other hand, NBFCs have a lot of flexibility, and this allows a small business with the chance to thrive in this competitive market outside. Small businesses can get an instant business loan sanctioned with NBFCs even if they don’t have a collateral asset. The businesses applying for a loan can get a business loan on varying interest rates. The interest rates at which loans are sanctioned depends on the credibility of the organisation or individual applying for it. A business with a good credit score will get a loan at a lesser interest rate as compared to the one with a bad credit score.

The documents required to apply for a bank loan and NBFC business loan are more or less the same. However, the NBFCs still ask for lesser documents than the banks. The eligibility criteria also differentiate them. Banks are a lot stricter in comparison to NBFCs. Thus, NBFCs are the preferred choice of SMEs and MSMEs.

The lenient nature of the NBFCs is attractive. A borrower with a bad credit history may never get a business loan from a bank or may lose the collateral which he/she offered at the time of taking the loan. This can be avoided by taking a collateral-free loan from NBFCs, which offers loans without any collateral asset and also considers applicants with a poor credit history.

These business loans provide for the much-needed cash inflow that any business strives for to maintain their operations smoothly. This helps small businesses to grow at a much higher speed compared to the scenario where no financial support is available to them. These NBFCs are encouraging more and more small business, who were not that keen to apply for a loan earlier thanks to the demands of banks. The growth of these small businesses are very crucial for the overall growth of the country, and that’s why the role of these NBFCs are also very important. These small businesses need to be encouraged and supported more and more in the coming years.

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