How can non-salaried people get a business loan in India?

by Ketan Choudhari Digital Marketer

A vast majority of businesses in India require an influx of finances to get the company off the ground and running. A financing option that is popular with most is a business loan. The establishment of a myriad of traditional banks and online lenders has made the process of obtaining a business loan that much easier.

A clear business plan is a must if any small business owners are looking for a loan. Most banks offer business loans to a variety of small and medium scale enterprises that provide various products and services in India.

 

How do non-salaried people get a business loan?

One of the main eligibility criteria of applying for availing a business loan is that the applier has to be employed and have a steady income.

However, with the advent of modern banking solutions, non-salaried people and self-employed individuals can also get business loans to kickstart their new venture. The government also offers various loan subsidies for unemployed and non-salaried individuals to assist them in availing a business loan.

·       Loans against property
Property documents can be given instead of the income documents as collateral. It is one way to mitigate the stringent eligibility criteria for a business loan. Typically, 45 to 65% of the property value will be disbursed as the business loan for non-salaried individuals. It is dependent on the loan to property value ratio.  It can be either commercial or residential property under the name of the applicant or the co-applicant.

·       Loans against credit card limit
Business loans are provided to non-salaried individuals against credit or cash limits. It, however, is highly dependent on one's credit score. Maintaining a good credit score is essential to ensure that the bank finds no reason to disburse your business loan. The interest loans for these loans are slightly higher.

·       Loans against gold assets
Business loans are also sanctioned when gold ornaments are pledged. The tenure for these loans is quite short and do not go beyond five years in most cases. The collateral remains with the lender until the entire amount is paid up. The business loan sanctioned depends on the value of the gold instead of primarily on the applicant’s repayment capacity.

·       Loans against stocks and bonds
Financial securities such as Demat shares, mutual fund units, term deposits, provident funds, and bonds can be used as collateral for a business loan for non-salaried people. The borrowing limit for the business loan is dependent on the value of the collateral that is pledged. It is vital to make sure that the security you are promising is approved by the lender one has chosen.

·       Loans without collateral
A few of the banks also give out business loans without any personal or business assets as collateral. It alleviates much of the risk that comes with taking out a big business loan. The interest rates for these loans are slightly higher than others.

How can the loan be used?

The highest loan tenure for a business loan for non-salaried individuals is 15 years in most banks. The business loan can be used for the following purposes:

1.       Working capital loans can be used to fund the operations of the business and to regulate the cash flow.

2.       Both banks and online lenders provide business loans to individuals who would like to purchase equipment for their business. It may be tools, machinery, copy machines, etc.

3.       Business loans can also be used for the expansion of an existing business. It could be to hire new personnel or rent a bigger space to run the operations.

The interest rates for these loans start at 10.80% and goes up to 20.75% depending on the bank, the amount of loan taken, type of business loan, and the loan tenure.

Eligibility criteria for a business loan

Both salaried and self-employed individuals can avail business loans from various banks in India provided they meet specific parameters determined by individual lenders.

·       The applicant should be a resident of India.

·       The minimum age at which an individual can apply for a business loan is age 24 and the maximum age at the end of the loan tenure cannot cross 65.

·       The applicant should have a good and profitable business plan and should not have defaulted on previous loan payments.

·       A good credit score is a must while applying for a business loan. The applicant's creditworthiness is essential to the lender when it comes to sanctioning business loans.

·       NGOs and charitable organizations that do not turn profits are not eligible for business loans.

Documents required for a business loan

KYC documents	Financials and other documents
The application form duly signed	Proof of address – the electricity bill, telephone bill, water bill
PAN Card	Proof of age - birth certificate, education certificate
Aadhaar card, Driver’s license, Passport	Bank statements for the past six months
Three passport-sized photos	Bank account statement
	Projected financial statements

At times, other documents might also be required. This differs on a case-by-case How to apply for a business loan

1. Apply online or by visiting the branch office of your chosen bank.
2. Submit the required documents along with the filled application form/
3. Once the documents have been verified, and everything is in order, the sanctioned loan amount will be dispatched in a few weeks.

 Even if a non-salaried person is applying for a business loan, their chances of getting the loan are much better if they are an educated, qualified professional. The age, repayment capacity, assets, and liabilities of the applicant play a considerable role when applying for a business loan.

It is essential to do some prior research before going in for a business loan. Like most other things, all banks and financial lenders have their pros and cons. However, with this being said, there is something for everyone in the market.
Capital loans can be availed from financial institutions – even by non-salaried individuals – to fulfill short-term business goals and growth objectives.

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Created on Aug 29th 2019 05:33. Viewed 469 times.

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