A salaried professional looks like a responsible applicant as he/she has money pooling in regularly in the account at the end of every month. But the ball game to avail a personal loan for a self-employed person is different from a salaried professional.
Here we give you a few tips which will help you in your loan approval process for your business.
1. Keep a track of your finances
When you apply for a loan, the first thing any lender would want to know is your financial earnings. Here you need to show them your financial records. Income tax returns, profit and loss reports, banks statements etc. are a few documents the lender might want to look at. For financial records to be up to date, it is important that you keep a track of your finances.
2. Convincing and Efficient Business Plan
For any lender to lend you money, you need to take them through your business plan. The plan should sound efficient and also realistic. You need to do a thorough market analysis for your business and then come to a conclusion about the future plan. Take into consideration factors like the market analysis, financial projections, and present expertise with the business etc. The lender will know that you have done the research accordingly when these factors are mentioned. This increases your approval chances and also makes you a responsible applicant.
3. Impressive Credit Report
In an ideal situation, any financial institution will expect that your credit score should be minimum 750. A credit score of 750 shows that you are regular with your payment of credit bills. Even though you might deal more in cash, it is advised to have at least one kind of credit payment. Either a credit card or a car loan or any other small loan can help you build a good credit score, given that you repay them on time.
4. No Outstanding Debts
When a bank or an NBFC sees that you have a lot of debt obligation then they might not be keen to give you a loan. You can pay off your current debts and then apply for the loan instead. The FOIR i.e. your Fixed Obligation to Income Ratio is one parameter which the banks and NBFCs specifically look at. The lower the FOIR the higher your chances to avail a loan.
5. Steady Cash Flow
You need to maintain a steady flow of cash if you wish to avail a personal loan. Your cash flow statements give the lender an insight into whether your business operation can generate enough cash to repay the loan.
6. Company Audits by a Professional
All your reports need to be accurate and look professional. Hiring a Chartered Accountant will help you review and make precise audit reports. This will help you to be a worthy and responsible applicant in front of the lender.
7. Thorough Documentation
Ask your lender beforehand to give you a list of documents required. Nowadays, a personal loan for self-employed applicants can be availed with minimum documentation.
8. Choose Your Financial Institution Carefully
Not every financial institution will be comfortable to give loans to self-employed applicants. You need to figure out which lender gives hassle-free personal loans to self-employed professionals and choose one accordingly.
Also, check your EMI before applying for a personal loan using personal loan EMI calculator so that you can plan your finance accordingly.
If you follow the above 8 tips and do your preparations accordingly, then there are low chances of your loan to get rejected.