How does the Business Loan for Self-Employed work?

Business loans for self-employed individuals work differently than traditional business loans. Since these applicants don't have a registered company, their loan eligibility and approval are based primarily on their income and credit profile.

These loans are designed for sole proprietors, freelancers, consultants, and other non-salaried earners who have been self-employed for at least 1-3 years. They will need to provide proof of their business activity, revenues and income in the form of bank statements, past income tax returns, business registration documents, etc. However, extensive company financial documents are not required.

The loan amount sanctioned is based on factors like the applicant's turnover, years in business, and income declared in personal tax returns. Tenures up to 5 years or more are usually available, with options for Equated Monthly Instalment (EMI) repayments.

Given the higher risk involved in lending to self-employed applicants compared to companies, the interest rates are usually higher. These are typically unsecured loans, so no collateral or security is required. However, depending on the application, the loan provider may ask for collateral.

The loan amount can be used for any valid business purpose, such as working capital needs, equipment purchase, business expansion, etc. Also, digital processing by financial institutions allows faster approval and disbursal within a few days.