Are you a self-employed professional? Earlier it was difficult for self-employed people to arrange funds. But the modern banking system and FinTech now provide instant personal loans for self-employed professionals.
This gives you freedom from the shekels of local creditors who offer a loan on high-interest rates and unrealistic terms. But your documentation and track record need to be solid.
11 Critical Factors to Get Personal Loan for Self-employed in India
It’s not difficult to get an Instant personal loan for self-employed professionals, provided you maintain all your documentation and a clean track record of repayments. These are the 11 factors that play a crucial role in the approval of your loan.
1. Record of Income Tax Returns
Many self-employed professionals who are not earning well don’t file income tax returns. But that’s the wrong approach. It doesn’t matter how much you earn. You must file income tax returns every year without fail. Banks and NBFCs (non-banking financial companies) check your track record through an income tax return.
2. Age of the Business
Your business credibility increases if it’s an old business. It shows banks and online creditors that you are established and experienced in your field. Thus, you are capable of repaying the loan. Therefore you must keep records of your business operations from day one.
3. Type of Business
The stability of the business does matter when it comes to applying for a personal loan when you are self-employed. Every creditor has its list of businesses which they deem safe. So if you are in a business which is not dependent on market trends, you will likely get the finance easily.
4. Business Revenue
Financial institutes give a lot of importance to the revenue generated by their business when giving a personal loan to the self-employed. NBFCs have relaxed criteria compared to banks, but decent and stable revenue is still required.
5. Profit Earned
As salaried people need to show income proof with a decent figure, you also need to show the actual income of your business. Therefore it would be beneficial to keep proper evidence and record of profit earned by your business. The banks want to know that you make enough to repay their loan.
6. Personal Credit Score
A CIBIL score is an indication of your creditworthiness. And a good credit score is maintained by paying all your bills and EMIs on time. So make sure you don’t miss a payment due date to hold a CIBIL score above 750. It’s also advisable to keep checking your CIBIL score.
7. Age of the Business Owner
Age is also an essential part of self-employed loan eligibility. The general criteria are between 30-50 years of age. People of this age are considered financially stable. So if you are close to 60 years or too young, you may find it difficult to secure a loan for yourself.
8. Current Liabilities
Creditors also check current debts before approving loans to a self-employed professional. Ideally, the total of your existing EMIs should not exceed 50% of your current monthly income. In this way, only you can afford to pay a new loan repayment.
You may need to pledge collateral if the bank sees you as a risky candidate. It can be land, a piece of equipment, or your stock which the bank can sell in case of non-payment of the loan. This is required to cover the bank’s risk.
10. Capacity to Repay Loan
It all boils down to your capacity to repay your loan. So the lender will access your profile from all angles to decide whether you have enough income and resources to repay the loan. Your family income or other sources of income might also be considered.
12. Unpaid Debts
Do you know unpaid debts can reflect in your credit history for up to 7 years? So your one late payment or non-payment can ruin all other regular repayment records. If you want to make your loan eligibility strong to get an offline or online personal loan as a self-employed professional, make all your payments on time.
Apart from all these 11 factors mentioned above, your association with the lender also matters. Moreover, the latest financial trends and technology allow you to apply online for a pre-approved personal loan as self-employed. So there are various ways to get finance and expand your business if you are well aware and financially stable.