Personal loans are a quick and convenient method to avail finances when you are in need of funds. Several financial institutions across the country offer such credits with multiple features and benefits and competitive interest rates.
Both salaried and self-employed individuals can apply for such advances. A personal loan for self-employed individuals can help you tackle your emergency financial requirement as these loans do not have any end-use restrictions. You can use the money for medical emergencies, leisure, pursue higher education, or even utilise it to meet your business goals.
However, there are a few things you should note when taking a personal loan for a self-employed individual. There are multiple critical things that impact a financial institution’s decision to disburse the loan amount. Any discrepancy in these conditions can cause your application to get rejected.
Some crucial factors
Annual business revenue – Financial institutions put additional weight on a business’ yearly revenue before approving a loan application. The profitability of your company indicates its repayment capability; if your business has a steady income, you are more likely to repay a personal loan for self-employed easily.
The loan amount may also vary according to your annual revenue. A higher-earning business is more likely to secure a larger loan amount.
Tax returns – Financial institutions put a lot of emphasis on accurate tax returns when you apply for a personal loan for self-employed. Almost every lender asks for Income Tax Return filing of 3 years as an obligatory document while applying for a personal loan.
In most of the cases, you will only have to show Income Tax Returns of your business. However, you may have to submit IT returns against your personal income along with the necessary documents.
Annual profit – Disposable income plays a crucial role to determine your creditworthiness when you apply for a personal loan. The total amount earned after paying the overhead expenses decides your repayment capability. Lenders will consider the amount declared in your IT return and calculate your loan’s eligibility.
Worth mentioning, lenders may also ask you to showcase your business plans to approve a loan request. You should know how to create a growth plan for your small business and uphold it to generate revenues.
Type of business – Lenders may also consider the nature of your business before approving your application for a personal loan for self-employed. Very few industries enjoy a steady revenue stream throughout the year; however, some professions are more volatile than others and possess a lower chance of availing credit.
Business areas that will boom in 2019 and consecutive years are more likely to get approved for credit with more ease. For example, you have a higher chance as an applicant if your business functions in sectors such as automobile, renewable energy, etc.
Business vintage – Business vintage or the number of years of business operations is a necessary criteria to apply for a personal loan for self-employed. It shows that your company is reliable, sustainable, and has a clear growth picture for the future.
Most financial institutions look for at least 3 years of business vintage to approve a loan. Business with a higher vintage may enjoy a higher amount of business loan.
The above-mentioned factors are some of the most important aspects you should consider while availing a personal loan as a self-employed individual.