List of important documents to avail loan for small business or start-up
With a pick-up in the business environment, egged on by supportive public policy from the government to instill and promote entrepreneurship spirit in the country, small businesses and start-ups are seen mushrooming everywhere. As per reports, the Indian MSME sector has shown considerable growth over the last few years. The number of MSMEs rose at a CAGR of 18.5% between 2019 and 2020. When it comes to start-ups, according to the Economic Survey 2021-22, the number of recognized start-ups in India has exceeded 14,000 in 2021-22 from a mere 733 in 2016-17.
The growing number of MSMEs and start-ups have contributed to the growth of the economy too. However, every business needs funds to establish itself and grow. This is where a business loan comes into the picture.
What are business loans?
Business loans are those that are offered to businesses to help them meet their financial requirements. Business loans are generally larger than personal loans and come backed by the business’ creditworthiness. Small businesses and start-ups can avail of a business loan for their financial needs from different banks and Non-Banking Financial Companies (NBFCs), and now there are also options to explore from private financial institutions and microfinance companies.
However, a parameter that remains constant when availing of a loan irrespective of the type of lender is that small businesses or start-ups must submit a set of business loan documents to the lender. The lender uses these documents to check whether the business is eligible for the loan. Moreover, the documents help the lenders assess the creditworthiness of the business and to verify its credentials. While the exact list varies from lender to lender, let’s have a look at the generic set of documents required for small business loan applications to be processed for start-ups and small businesses.
Documents required for a small business loan
● A loan application form, duly filled and signed
● Copy of the PAN Card of the business
● Proof of identity, can be any one of the following documents –
o Aadhaar card
o Passport
o Driving license
o PAN Card
o Voter’s ID Card
● A proof of address which can be any one of the following documents –
o Passport
o Driving license
o Aadhaar card
o Voter’s ID Card
o Latest utility bills
o Property deed
o Rent agreement
● Bank statement of the last 3 to 6 months showing the inflow and outflow of money
● The latest income tax return of the business or the individual.
● Financial statements like the computation of income, Balance Sheet, Profit and Loss Account of the last 2 or 3 years. These financial statements should be audited or certified by a Chartered Accountant
● Proof of business continuation. This can be established with any of the following business loan documents –
o Income tax returns for the last 2 or 3 years
o Trade license of the business
o Establishment certificate
o GST registration certification
● Declaration of sole proprietorship for a sole proprietorship business
● Copy of the Partnership Deed for a partnership business
● True copies of the Memorandum of Association and Articles of Association of a company that has been certified by the Director of the company.
● Original Board Resolution would also be needed in the case of a company
These are the basic business loan documents that are a must for availing of a loan for a business. Besides these, the lender might also require other documents depending on the type of your business and loan application. Furthermore, besides the required documents, a good credit score is also required to get the loan. You should also fulfill the eligibility parameters specified by the lender to qualify for the loan.
Bottom line
Loans are available to help you finance your business and can be accessed online, thanks to the growth of the digital medium. However, specified business loan documents are needed to get the loan application processed and the loan sanctioned. So, know the documents needed for securing credit to fund a small business or a start-up. While the list includes almost all the required documents, check with the lender to know the exact list. Arrange the relevant documents when you apply for the loan so that your application gets processed without unnecessary delays.
