Applied for a business loan recently? Then you must be looking forward to the disbursal process.
Today, you can apply for a loan online in just a few minutes. But while the application process is quick and easy, loan sanction and disbursal usually take longer. Because even if you fulfil all business loan eligibility criteria, lenders still perform a thorough verification before giving you a loan.
So why does this verification process matter? Let’s understand.
What do lenders verify?
If you check your lender’s application process, you will see that they ask for some documents. These include your identity proof, registration documents for your business, bank account statements, and the balance sheet. Using these, they want to verify:
- Your identity
- The legitimacy of your business
- Your income and debt levels
Let us now explore how lenders verify them and why.
- Your Identity
If you read the list of documents required by any lender, you will find these documents listed under identity proof:
- Aadhar card
- Driver’s license
- Address proof, such as your recent electricity bill
- GSTIN and TAN
Using these documents, lenders cross-check your identity and eliminate all possibilities of fraud. Your PAN allows lenders to inquire about your credit score, while the GSTIN and TAN are used to check your company’s credit score.
Lenders use both your scores to determine your loan suitability. If you have a poor credit score and your company has a low rank, you should improve your scores before applying. Doing so can help boost your approval chances.
In fact, if you have a good credit score, lenders might also offer you preferential business loan interest rates.
- Your business
To ensure your business is legitimate, lenders will first check if it is duly registered under Indian law. If your business license, TAN, GSTIN, and other relevant documents are valid, your business will be painted in a favourable light.
Besides, your business documents will allow lenders to verify the structure of your business, whether it is LLP, sole person company, public or private limited company. Since different business structures provide varying levels of asset protection, this step is crucial when you avail of a secured loan.
- Your income and debt
All lenders seek to reduce risk by verifying that small business owners can repay their loans on time. If you have a history of unpaid debts, they will take it as a sign that you will struggle to repay another loan. So, either they will reject your application or give you a small loan at higher business loan interest rates.
To verify your income, lenders use the following documents:
- Bank statements for the past six months at least
- Tax returns
- Profit and loss statements
- Balance sheet
So, make sure each document proof is updated.
A word of advice
Before applying for your business loan, make sure you fulfil all the eligibility criteria, have your documents up to date, and have a good credit score and income. Also, borrow what you can repay within your budget, and use a business loan EMI calculator to estimate an affordable EMI. With these tips, you can ensure a speedy loan disbursal in no time.