If you going to apply for a business loan, you will first need to get all the documents required ready before you even approach a bank, non-banking finance companies (NBFCs) or other lenders.
Regardless of which lender you go to, most of the documents required for business loan are going to be nearly the same. This is what you need:
1. Know your customer (KYC) documents.
KYC documents are meant to serve as proof of identity of the borrowers – the business and its principals. So you need to show the business registration certificate you got when the business was registered. For sole proprietorships, which do not need to be registered, this may be the Shop Act License you have.
For companies, it can be the certificate of incorporation. For partnerships, it can be the registered partnership deed.
Along with one of the above proof of business registration, you will also have to provide identity proof in the form of the PAN Cards of the business and the proprietor or directors / partners.
2. Audited business financials (balance sheet, profit & loss statements, tax returns)
Any lender considering whether to approve your business loan, and how much to approve, will first want to analyze the financial condition of your business. What is the cashflow, what are your expenses, is the business profitable, and most importantly – does your business generate enough revenue to meet the loan repayment schedule? In order to help the lender understand all this, you have to submit the following audited business financials – balance sheet, profit & loss statement, and at least 1 year of income tax returns for the business. In the case of sole proprietors, they will have to submit their personal income tax returns. Some banks may ask for 2 or 3 years of tax returns, depending on the amount of loan you are applying for. If you are not going to provide a business plan, then you may also need to include a sheet showing projected revenues for the duration of the loan repayment term.
3. Bank statements for the past 6 months.
One more key document requirement for a business loan is the bank statement for the current account in the name of the business. You will have to provide current a/c bank statements for the past 6 months prior to the month in which you are submitting the loan application.
4. Your business plan or project for which you need a loan (optional).
If you have a business plan for the project for which you need a loan, then submit the plan along with the other documents. This is not strictly required by all banks and other lenders. But it may be needed in case you are starting a new business or expansion project for which there is no track record or financials to prove its viability.
The best thing you can do is decide how much amount you need, then collect all the aforementioned documents and put them all together in a file. Approach multiple banks and other lenders and/or investors and find out how many are willing to give you the loan, and under what terms. It’s possible that you may get better terms from one bank, or there may be an investor willing to provide the amount you need in return for equity. Compare all the options, and then choose the one that will be most beneficial for your business in the long term.