A self employed individual could feel the need for money to apply for a loan for personal use and banks and NBFCs also consider such applications. However, they might consider a few parameters before approving the loan in the first place. There are certain factors that determine this approval and so if you are a self employed individual looking for a personal loan, here are a few things to consider.
- Income Tax Returns: It is important for the self employed individual to show documentation of ITR as all banks and NBFCs are very particular regarding this for granting a personal loan for self employed. Some self employed individuals feel that there is no need to do this but when it comes to financing, this is what most lenders would ask for. One has to provide the ITR of the last three consecutive years and the returns should be filed in one’s own name as to how much the individual makes from his business.
- Revenue: The next aspect the self employed must consider is the revenue. Many banks and NBFCs are interested in the revenue generated from the business- in terms of the money one is making from the sales of a particular product or a service. This is just the gross income one makes and the costs one incurs on the business. Most banks would look for revenue generation in the vicinity of Rs 50 lakhs per year for the loans extended to self employed professionals but NBFCs consider Rs 10 to 15 lakhs revenue as well.
- Profits and income: Just as in the case of a salaried professional, a very critical factor for the bank when a loan is extended is the ability to pay back. The disposable salary minus the overheads is calculated in the case of a salaried professional, for self employed people, it is the income they make for their business. The income from the ITRs would be considered. Some banks have a strict mandate of Rs 5 lakh as the net income and NBFCs can lower it to Rs 2 lakhs as well.
- Vintage: This point is often overlooked in the case of self employed individuals. It is important that the business should be up and running for a while and that gives an assurance to the lender that the business is steady and reliable. In case of a very young business, a lender will not have the trust whether it would last and so lenders always look for vintage three years and above, something this is again established through the ITR.
- Kind of Business: One might not think much about the kind of business one has while one applies for a loan but it could be a crucial factor as this might affect the lender. The lender will look for stability and income and this is not possible if the business is very seasonal in nature. This might not give enough confidence to the lender and they might only agree if the business has been active for a very long time.
Hence, it is important to keep all these factors in mind while applying for a personal loan for a self employed person. There are many banks and NBFCs like Bajaj Finserv who have very good personal loan options in place for the self employed and if one keeps a track of a few other aspects like maintaining a good credit score, and also providing all the right documents, there would be no trouble in availing the loan at all.