Eligibility Criteria When Applying for a Personal Loan for Self-Employed

Posted by Arwind Sharma on September 2nd, 2019

One of the largest contributors to India’s GDP is her 63 million small and medium scale businesses. An increasing number of budding entrepreneurs are creating their own source of income by setting up companies, which are both convenient and profitable. Moreover, these entrepreneurs are expanding their business at a fast rate with the help of personal loan for self-employed offered by various financial institutions across the nation.

However, these loans are unsecured credits where a borrower does not pledge any collateral against the credit. A borrower has to meet the minimum necessary eligibility criteria to apply and avail a credit. Fulfilling these requirements will ensure there are no reasons for personal loan rejections.

Eligibility criteria followed by most financial institutions

Every financial institution has a list of eligibility criteria. Listed below are some details which are taken into consideration by nearly every lending institution before sanctioning a loan for self-employed.

• Credit history: Credit history is a collection of information of an individual’s past lines of credit, payments, and the total number of enquiries made by a financial institution of their business profile. Self-employed loan seekers with a credit score of above 750 may find their loans sanctioned faster compared to those who have a lower credit score.

A higher credit score represents that an applicant is responsible for his or her finances and has a history of timely repayments. It also shows that they are more creditworthy and present less risk to lenders offering a feature rich unsecured business loan.

• Age: To apply for a personal loan for self-employed, a person should be between 21 and 55 years of age.

• Business stability: An applicant should have at least 3 years of business vintage to apply and avail a personal loan for self-employed. A longer business tenor signifies stability and shows that a borrower is more likely to have a steady source of income to pay off the debt.

• Previous year’s turnover: A lending institution will also look at the last year’s turnover of a business, audited by a chartered accountant.

Additional details which are checked by a lender

In addition to this, financial institutions will also look into the following information before sanctioning a personal loan to a self-employed individual.

• Income Tax returns: A lending institute will always check whether all his/her documents related to income tax are correct. That is to make sure a borrower has paid his/her taxes on time. If a loan is applied for business purposes, then the lenders will check files related to that organisation’s corporate tax.

• Income: In order to have a personal loan sanctioned, one needs to have a minimum monthly income. One major question which financial institutions asks prospective borrowers is about their documents related to their monthly income like bank statements, profit & loss sheets, etc. These also determine the amount a financial institution will provide as a loan. The minimum income criteria usually differ between institutions.

Personal loans have always been a boon for entrepreneurs who are trying to expand their organisation and tap into the booming business trends of 2018. This particular loan has a more straightforward process and documentation compared to that of a business loan. With the help of these personal loans, the economic growth of India has developed in recent years and will continue to grow in the future.