The question most people ask is what documents are necessary to qualify for either a business or capital loan? You need to understand the procedure banks or NBFCs carry out before lending you a loan. When you request for a loan from financial institutions, they establish your authenticity by performing KYC (Know Your Customer) analysis. The scrutiny involves verifying your identity and address documents to confirm your genuineness and assessing your creditworthiness to establish your ability to repay the loan. The financial institutions perform such procedures because they are regulated bodies and hence under obligation, as stipulated by RBI (Reserve Bank of India), to perform KYC.
What documents do you need to secure a loan?
Below is a list that guides to the documents required or verify at various stages of loan application process.
Stage – 1: Identification Proof
- Permanent Account Number (PAN) card
- Voter’s Identity Card
Stage – 2: Address Proof
- Bank statements
- Electricity Bill
- Telephone Bills
Some documents can serve as both Identity and Address proof. Below are documents financial institutions use to determine your identity and address proofs;
- Driving License
- Aadhar Card (a 12 digit identification number Unique Identification Authority of India issues to each and every resident).
Stage – 3: You’re Business Stability Proof
- Income Tax Returns; capturing Income Profit and Loss, Balance sheet and any other aspect you feel will influence your business outlook positively.
- Trade License
- Business Registration Certificate (widely known in Maharashtra as Gumatsa)
- SSI (Small Scale Industries) license/Udyog Aadhaar
- Value Added Tax, Sales Tax or Service Tax certificate.
Stage – 4: Bank Statements
You will need both savings and current account bank statements for your business, preferably those of the last six months
Stage – 5: Additional Documents
In addition to the above documents, financial institutions need the following, depending on the nature of your business, and laws governing it. You should, therefore, prepare and avail them (if available) to expedite the process.
- Registered Partnership Deed, Article of Association and Memorandum of Association.
- Working capital loan; to determine the amount of loan you qualify for also known as overdraft limit, financial institutions look at your total debts, total credits, and stock statement. So, always have them in hand when applying for a business loan.
- Mortgage Loan or Loan against Property; here, property documents such as registered sales deed and occupancy certificate come in handy.
- Business Plan/ Project Report happen to be the most overlooked document in loan application process. Note that when applying for CGTMSE, Mudra loan or any other grant/scheme loan, financial institutions will ask for these vital documents. However, for other types of loans, banks may or may not request you to avail the documents, although, for the purposes of creating a profitable business, it is crucial to make one.