When taking a personal loan as a self-employed individual, the bank or NBFC considers some critical things before giving you the loan. The considerations can be lenient on eligibility factors, while for others, the rules are quite strict on criteria. Let’s check what it takes for getting a personal loan sanctioned when you are a self-employed professional.
1. Income Tax Returns: Many a times, self-employed professionals may not file for income tax process in due time. This may grant gains for short-term, but it will definitely deal a blow when there is a need for personal loan or finance from bank/institution. NBFCs and banks are very particular when it comes to Income Tax Returns (ITR) for a minimum of last three years of individuals applying for personal loans.
If you operate a private limited company or LLP, this does not mean that the returns will be evaluated in the name of the business you run. You need to file the returns in your own name and income made from the business.
2. Existence of the Business: It is essential that your business must have been in operation for some good amount of years, for you to get a personal loan easily. Vintage of a business assures banks and NBFCs about its sustainability and reliability, with data about how your self-employed status would ensure that you can pay back the loan in time. In case the business in still young, the lender may not be comfortable to give you a loan.
Generally, you must be a successfully self-employed professional for at least a period of 3 years or more, but the criteria may differ depending on a bank to next. The bank may demand formal statements and documents to understand the number of years your business has been in existence.
3. Nature of the Business: The kind of business does matter when you need a personal loan as a self-employed professional. Some banks and NBFCs consider this aspect as important in making a decision to grant a loan or not. The lender wants to learn the stability of the business and your source of income.
As some businesses could be volatile and seasonal, such may not imbue enough confidence for the bank about your repayment capacity every month or as in the decided EMI period. Each NBFC or bank has set different criteria for which type of businesses they consider as secure to deem you an eligible self-employed person to apply for a personal loan.
4. Your Earnings: The revenue your business generates (in terms of money by trading/selling services/products), comes under scrutiny when you apply for a personal loan as a self-employed person. Most banks consider revenue of few lakhs or least INR 50 Lakhs annually, when extending loans for self-employed individuals. However, some NFBCs can relax this criterion to up to INR 15 lakhs or less as well.
5. Income and Profits: As the disposable income of salaried professional is a factor for the bank to decide in giving a personal loan, your disposable income as a self-employed professional, will help the lender to judge your ability to pay back the loan. After all, only if you can prove that you can repay without defaulting, will a bank consider you as a safe option to release the loan.
Some of you may receive income from the business, while others will take all the profit from it, or vice-versa. In both the incidences, your earnings from the income tax returns will be noted. Few banks could be strict as to mandate at least an amount of INR 5 lakhs as net income required for allowing you to take a personal loan, while some NBFCs or banks could relax the limit to INR 2 lakhs.
These were some of the critical factors to note when you want to apply for a personal loan being a self-employed personnel. Never produce false documents to the bank, as during checks if any fraud shows up, you may be liable for legal action. Also, don’t forget to collect your ITRs as otherwise your chances of securing a personal loan could dim or get delayed.