How Can a Sole Proprietor Get a Business Loan in India?

published on: July 13, 2018 last updated on: May 13, 2021
Business Loan

A sole proprietor is a business owner of a small firm. A proprietor runs a business with limited access to financial resources. The tax benefits are of course there, but a need for funds might compel a sole proprietor to take a loan. However, for such a small firm, is the option of a Business Loan available? The proprietor may invest from the savings initially, but after a time there might be a need of investment for survival or expansion. There are various options available for the financial needs of a sole proprietor. Let us discuss them.

1. Small business administration :

For working capital, furniture, building renovation and other general expenses, a sole proprietor can go for this type of loan.

2. Angel investors :

 Applying for funding is a common phenomenon in the startups these days. There are B-plan competitions and investors summit where you can pitch your business idea and apply for funding. There are different types of investors available; some may give you funds, while some may offer a space to you.  Incubation and mentoring support is another way you can get help from other companies.

3. Private investors :

 Some investors would be willing to invest in your company, provided your business look profitable. If you fail to avail other options for your financial needs, then only you should encroach upon this one since the investor will have a say in your business after that, and the decisions may not be only yours.

4. Business grants :

 Private organizations or federal agencies do offer help to Get a Business Loan in India to sole proprietors if they meet specific standards, particularly in income. State economic development agencies also provide amounts for the stimulation of the local economy.

5. Business Loans for an individual :

 If nothing works, you can take a Business Loan as an individual. Your background will matter here more than the profitability of the business.

When you establish a new company, your credibility holds no proof. You may be honest with your projections, but without any legal or formal document that could state this fact, you find it difficult to avail a Business Loan. Secondly, you need an investment which is not huge. At the first stage of any business venture, nobody will spend a considerable amount on it. The establishment would require a small ticket size, which does not interest most of the lenders. To solve this issues, as current is the era of start-ups and not all the budding entrepreneurs have an investment ready, a scheme called proprietor loan had hit the market.

A wholly customized finance related solution is offered in this program. You can avail an Unsecured Business Loan for a small term, or a merchant cash advance which is a credit facility of swiping the card at stores for which you will pay later. Business funds up to Rs. 5 Lakhs can be taken as a proprietor loan, and there are mobile apps available to receive the benefits of such an investment, with which you can get a loan approved within five minutes. The eligibility criterion for a proprietor loan is simple; your company needs to be operational for a year or so. The documents that you would need to get a Business Loan inIndiaare – identity proof of the proprietor, business KYC, proof of address, Aadhaar card, and PAN card; like for an ordinary Business Loan. You can even apply for a Business Loan for your firm, being its sole proprietor, if you serve the following grounds:

6. Security or a guarantee :

 Any residential or commercial property can help you get a business loan from the bank. For a new company, the bank cannot risk the loss of its capital. Hence, against the mortgage, you need to put something equally valuable.

7. Company’s profile or rating :

 A company running for last one year is eligible for a loan, provided there is an appropriate credit history to gauge the score of the company. The financial conditions are the parameters that decide your repayment capacity. A low repayment capacity suggests a loss in investment and no investor wants to bear the loss.

8. Nature of business :

 Manufacturing goods are different from offering services. A manufacturing company will require a right amount of money for its establishment and other licensing. However, startups today are growing like anything. Hence, there is a need to monitor the idea, the potential as well as the duration required for earning a profit.

Other than these, you need a guarantor, income tax reports for the last three years, copy of bank account statement and other documents to show your eligibility for the loan. A sole proprietorship is the most common type of business in progress owing to its benefits and the recurring issues with the partners. Taking credit for nurturing your business is a good idea, but honestly analyze the real potential of your concept before stepping into the world of entrepreneurship.

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