Financial Updates

Main Features of Loan for Self-Employed

Leave a comment

Self-employed Loans and Business Loans

Customers need to have clarity about loans meant for self-employed for many confuse it with business loans. Business loans, in most cases, are a separate category of loans. However, there are some similarities between business loan and loans for self-employed in that both are unsecured loans offered by Non-Banking Financial Companies (NBFC) and banks. Banks, however, have stricter regulations compared to NBFCs for offering personal loans to self-employed persons. Also, NBFCs charge a higher rate of interest than banks for loans offered to self-employed persons.

Features of Loan for Self-employed

The salient features of loans for self-employed persons are listed below:

  • Age: Different banks have varying age bar for offering loans to self-employed. While the minimum age to avail of loans for self-employed is 28 years for ICICI bank, Axis bank offers loans (self-employed) at 24 years
  • Eligible persons: ICICI bank offers loans to self-employed/proprietorship firm and non-professionals, Axis bank offers loans to doctors, chartered accountants, architects and company secretaries who are self-employed
  • Turnover (minimum): Major Banks have their own set criteria in terms of minimum turnover to provide loans. For instance, non-professionals and professionals must have a minimum turnover of Rs.40 lakh and Rs.15 lakh respectively to avail of loans offered by ICICI Bank. Some NBFCs are open to offering loans to firms with an annual turnover Rs.12 to 15 lakhs
  • Stability: Banks have different set conditions in terms of business stability. For instance, ICICI Bank offers loans to self-employed persons with least 5 years of experience and doctors (self-employed) with three years of experience
  • Profit after tax: Axis Bank offers loans to self-employed persons whose firms have registered Rs.2 lakh p.a as (minimum) net profit. ICICI Bank offers loans to proprietorship firms with profit after tax of Rs.2 lakh (Rs.1 lakh for non-professionals). Akin to disposable salary which is an important factor reviewed by banks before offering loans to salaried professionals, profits after tax is a critical factor which determines whether a self-employed individual is eligible to avail of a loan offered by a bank or NBFC
  • Type of business: Most lenders will hesitate to offer loans for volatile businesses. Most banks and NBFCs look for stability and the revenue generating model of business before offering loans to ensure timely repayment and avoid bad loans or defaults
  • Income Tax Return: Not many are aware of the fact that it is important to file income tax returns without fail to avail of loans for self-employed persons offered by banks and NBFCs. Most lenders demand ITR of a minimum of 3 years to offer a loan. An individual (associated with a private limited company or LLP) has to file income tax returns in his or her name for a record of the income generated from his or her business.

how-to-get-a-loan-to-start-small-business

Documentation

The following table shows the list of common documents requested by banks and NBFCs for offering loans to self-employed persons

Identity Proof
Address Proof
Audited Financials (two years)
Office Address Proof
Office Ownership Proof
Bank Statements
Passport size Photographs
Proof of Occupation
IT Returns

*May vary from bank to bank

Advertisements

Author: shruthi6059

Hi this is Shruthi from India. I am an independent financial adviser specializing in comprehensive financial advice.I can help with all your financial advice needs whether your situation is straight-forward or out of the ordinary.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s