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2015-05-22 00:00:00Money & FinanceEnglishBusinesses may require some form of financial assistance along the way & this article captures some basics of loans, loan documents &... Essential Documents for Applying for a Loan

The Essential Documents for Applying for a Loan

2 min read

Any business, however large or small, requires some form of financial assistance. A crucial aspect of starting or growing a business is raising adequate business capital.

Business loans mitigate the tight financial situation you’re in and open new opportunities for you. The primary goal of a business loan is to help your business to start or grow its activities.

Kinds of Loans:

Personal loans & Business loans mainly come in two different categories – Professional Loans and Trade Loans

Professional Loan:

Banks offer Professional Loans to self-employed individuals like Architects, Doctors, Chartered Accountants, etc for reasons like purchasing new equipment for work, repairing their existing equipment or for repaying a high cost loan from other banks.

These kinds of loans are secured in nature and will not be lent to industrial, trading or manufacturing units.

The amount of loan varies from Rs. 25,000 to Rs. 25 Lakhs based on the applicant’s age, financial credit history, period of loan, etc. The interest rate is calculated on a diminishing return, fixed or fluctuating basis.

The applicant can repay the loan through EMIs while in some cases a collateral security has to be furnished for limits above Rs. 25,000.

Documents required for Professional Loan are:

  • Proof of identity of the loan applicant (Passport, Voter’s ID or Driving License)
  • Address Proof (Ration card, telephone bill, electricity bill or Passport)
  • Bank Passbook or last 6 month bank statement
  • Most recent Income Tax Return as well as computation of income
  • Balance Sheet and Profit & Loss Account for the last 2 years, certified by a Chartered Accountant
  • Proof of Educational Qualification for Highest Professional Degree achieved
  • Trade license /Establishment /Sales Tax Certificate for the Proof of Continuation of his profession
  • Other Mandatory Documents: As a Sole Proprietorship its Declaration, As a Partnership its Copy of Partnership Deed, Apart from Copy of MOA, AOA & Board Resolution etc.
  • Finally two passport size photographs also to submit.

Trade Loans:

Trade loans are “flexible, short-term borrowing facilities, linked to specific import or export transactions” as defined by ACCA.

Firms can avail of them regardless of the method the firm uses to trade. How a trade loan helps is it assists to fund trade transactions in a firm’s given trade cycle, thereby improving its cashflow. Documents required for Trade Loan are:

  • Proof of existence of business for the last two years
  • Proof of residence
  • Proof of place of business
  • Financial Statements including Balance Sheet and Profit and Loss Statement for the last three years

Banks are generally very willing to provide loans to businesses and will work with you to get your business going.

Many banks provide personal advisors who come and analyse your business for you and recommend the kind of loan you should go for.

Do remember to check with each bank for their particular set of eligibility criteria and documents required.

Therefore if you are looking for a loan to help start or grow your business, the first step is to gather these documents and ensure they are up to date so that you may begin the process to apply for a loan.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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