When applying for a business loan, the lender requires you to furnish supporting documents for all the information you provide to them. These documents include your KYC (Know Your Customer), business establishment proof, continuity proof, and revenue and finance-related papers.
The lender performs a credit appraisal based on these documents to determine lending risk. If your business perfectly matches the lender’s criteria, you will be sanctioned for a higher loan amount on favourable terms and conditions.
Let’s understand the business loan documents in detail.
List of Documents Required for Business Approval
The following is a list of essential documents that you have on your checklist:
- Application Form
The first document you need to submit when requesting a loan for business is a business loan application form. This digital form records details of your entity, such as the name and type of your business, whether you operate as a sole proprietor or a partnership firm/limited liability partnership/private limited company, and the number of years you have been in operation.
Additionally, you need to provide information on the business turnover and profit.
- KYC Documents
When applying for a business loan, presenting a complete set of KYC (Know Your Customer) documents is crucial. These documents help lenders verify your identity as well as assess your credibility. Here is a detailed list of the KYC documents typically required:
- Identity Proof
Any valid government-issued photo ID from the following list:
- Aadhar card
- PAN card
- Voter ID
- Passport
- Driving license
- Address Proof
Furnish one document that is evidence of your residential address and one that supports your office address
- Utility bills (telephone, electricity, broadband)
- Passport
- Trade License
- Rental Agreement
- GST Certificate
- Financial Documents
Financial documents give your lender an idea of how sound your business is in terms of revenue and profit and whether your company can handle any new debt.
Here are some common financial documents required.
- Business-related bank statements (usually for the past two years)
- Latest Income Tax Return (ITR)
- Computation of Balance Sheet
- Income & Profit and Loss account (for the last two years)
You may also need to submit a cash flow statement. This will give your lender insight into whether you are effectively using revenue for business expansion or if it is lying idle in your current bank account.
- Business Related Documents
Business-related documents vary based on the industry in which you operate. Here is the insight on some —
- MoA
MoA refers to a Memorandum of Association. This document defines your company’s scope of operations and sets out the framework within which the company must operate. When establishing your business, you must file this document with the Registrar of Companies (RoC).
According to the Companies Act of 2013, this document includes specific clauses —
- Name Clause: States the company’s name with ‘Limited’ or ‘Private Limited’ as applicable.
- Registered Office Clause: Specifies the location where your business is registered.
- Object Clause: Outlines the objectives for which the company is formed.
- Liability Clause: Specifies whether shares or guarantees limit the liability of the members.
- Capital Clause: Highlights the amount of share capital the company will have and how this capital is broken down into shares of a fixed amount.
- AoA
AoA stands for Articles of Association. This document functions as a company user manual, providing guidelines on appointing and removing directors, issuing and transferring shares, and paying dividends.
The AoA helps lenders understand the rules and regulations governing a company’s internal affairs.
- Trade Licence
You must apply for this document to operate your business within the specified limit. A trade license is issued by the city’s municipal corporation where the business is located.
Lenders require this document to check if your business complies with the rules and safety guidelines set by the local government.
Trade licenses are categorised based on the nature of the business. For example, the rules and regulations might differ for food establishments, industries, and shops.
- Lease Agreement
If the premises from which you operate your business do not belong to you, you must provide the lease agreement to the lender. This document serves as proof of your business address.
The agreement spells out the duration of the lease, the rent amount, the payment schedule, and other conditions, such as maintenance responsibilities and restrictions on use.
In most cases, a lease agreement is valid for 11 months. However, if the duration is longer than this, ensure that the agreement is registered. If not, your loan application might be rejected.
- GST Certificate
If your business turnover exceeds the threshold limit of Rs 40 lakh or Rs 10 lakh for North Eastern and hill states, registration for GST is mandatory.
Once your business is registered, you must display the GST registration certificate at your place of business and include your GSTIN on your name board. This compliance requirement is under Rule 18 of the CGST/SGST Rules.
If the lender finds you do not adhere to these rules, they might reject your loan application.
Conclusion
Knowing about the list of documents makes your business loan application process less of a hassle. Besides the documents mentioned above, it is important that you also prepare a business blueprint and file documents that highlight the work experience of the top management in your company.
