Personal loans can be used to cover everyday expenses such as energy bills and food, as well as more substantial costs such as debt consolidation. Personal loans are often easy to obtain because they do not require a large amount of documentation. While things are easier for a salaried person, a self-employed person needs to consider a lot of things before applying for a personal loan. You only need proof of residency, a few months’ worth of pay stubs, and proof of employment. If you have all of them, you’ll be able to obtain the funds you require. However, if you are self-employed, you may have to jump through hoops to obtain a personal loan and demonstrate your ability to repay it. While the application procedure may be more difficult, it is not insurmountable.
Personal Loans for Self Employed
Self employed person can avail personal loan for personal or business use without any end usage restrictions. Individuals who are self-employed make their living from their own incorporated firm. They can be divided into two categories.
Self-employed professionals: Self-employed professionals are defined by banks as doctors who run their own clinics, architects, chartered accountants, and interior designers.
Self-employed non-professionals: These are businesses that aren’t classified as self-employed professionals, such as manufacturing, trading, or service firms.
When you’re self-employed, how can you apply for a personal loan?
Self-employed people may be eligible for a personal loan. It may, however, necessitate more effort than usual. To begin your loan application, you must first establish your identification. Presenting a legitimate ID, such as a passport or driver’s license, will suffice. In order to get approval and sanction on favorable terms, it is essential that what your eligibility depends on. So, take a look at the factors that most of the lenders consider when you apply for a personal loan in India for self employed professionals.
All lenders have their own eligibility criteria and this includes an age group that they approve loans to. In order to get sanction on your application it is important to fall within this age group. The age requirement for most of the lenders is between 25 and 58. In these cases, inadequate finance is a cause of concern for lenders.
Your credit score
Your credit score indicates the creditworthiness. This plays an important role in personal loan application. The creditworthiness enables them to determine the factors such as the loan amount, interest rate, and tenor. As personal loans are unsecured, it is best to have a credit score of 750 or higher or higher for easy approval. If you have a low credit score, you may not get a sanction you are hoping for and may have to pay higher interest.
Your business type and its vintage
Lenders are leery of financing to riskier enterprises, therefore they assess the nature of your business when reviewing your application. A secure business means that you are more likely to be able to repay your debts. Lenders prefer individuals who have been in business for at least three years. This is to eliminate the danger of non-repayment due to insecurity.
Profits and revenue are important since lenders will only approve the loan if they are confident that you will be able to return it on time. If you have a low income and a low profit, you’re more likely to default or miss payments. This is why, before granting your loan, certain lenders check your profit and loss account, balance sheet, and other financial records.
Your income tax returns
Both your personal and corporate tax returns will be thoroughly scrutinized. This is because lenders are hesitant to give loans to people who have missed tax deadlines. Lenders demand you to furnish at least two or three years of tax returns to confirm your eligibility.
Gross annual receipts
The income earned without deducting any costs or expenses during the annual accounting period is referred to as gross annual receipts. Personal loans for doctors and other professions are available from most banks and NBFCs with a minimum GAR of $5,000,000. However, double-check this, as many NBFCs and banks will only approve an unsecured personal loan to self-employed individuals with gross annual receipts of $10-15 lakh.
Banks also look at the borrower’s other properties. A borrower who lives in his own home or works from his own office, for example, will have a better chance of getting a loan approved. Furthermore, banks will examine the previous three years’ VAT returns to obtain a sense of the business’s true turnover and to verify that tax is paid to the government on time.
Keep these pointers in mind before you apply for a personal loan for self employed to ensure hassle free approval. Further, ensure that you get a flexible personal loan. This enables you to borrow as you need from your sanction.