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How to get a business loan without ITR?

How to get a business loan without ITR?
Business loan is an excellent option to cover all your business expenses. It can help you in getting working capital, purchasing new machines, and paying employee wages. However, before this loan can be approved, the lender will require you to provide several documents. The most important of these is a copy of your income tax return (ITR) documents.
 
But what if you missed the ITR filing deadline, or you started the business only recently? Will you still be eligible for a business loan? Let’s find out in this article. 
 

Why is ITR required to obtain a business loan?


The ITR serves as a proof of income for both individuals and businesses. The amount of tax you pay to the government informs financial institutions about your income for a given assessment year. Most lenders will expect you to provide ITR for the previous two to three years. They calculate your average annual income using this document.
 
If the lenders observe significant variations in your ITR or that your most recent ITR is significantly lower than the previous ones, they may deny your loan request.
 

Common Situations When Businesses Don't Have ITR

 
  • If you have just started a business that has yet to complete a year since its inception, you are not likely to have filed an ITR for it.
 
  • As a business owner, if your annual income is less than Rs 2.5 lakh, you may not have filed an ITR. As a good practice, even if your income does not fall under the tax slab, it is strongly advised that you file a nil return.
 

Can I take a loan without ITR?


The ITR is an important document and obtaining funds without it is a tough job. However, in some exceptional cases where your income does not fall under the tax slab, you may be approved for a loan. In this case, if you can demonstrate to the lender your business’ earning potential, the lender may be willing to offer you a business loan.
 
Here is the list of things a lender evaluates when it agrees to disburse a business loan without ITR.  
 

  1. Business Financials

    If your business income does not fall within the tax slab, you may provide other documents to prove your earnings. Some of these financial records include current account statements, profit and loss account statements, account receivables, etc.
     
    The current account statement will give the lender details about your transaction volumes and types. This will help them understand your company's cash flow position. Account receivables inform the lender of the amount you expect to receive soon. It also assists you in obtaining invoice discounting to help you meet your short-term operational needs.
     
Also Read: How To Choose The Right Business Loan
 

  1. Collateral 

    Except a few specific schemes from financial institutions, business loans are given as an unsecured debt. However, if you do not have an ITR, the lenders may require you to put up a business asset as collateral to reduce their risk. This collateral may include your company's plant and machinery, commercial vehicles, or property papers.
     
    In the event of a default, the lender has an option to seize and sell your assets to cover its losses. 
     

  2. Loan Guarantor

    Another great way to secure funds without an ITR is to include a loan guarantor on your business loan application. This guarantor can be a friend, business partner, or family member having a regular source of income. When introducing someone as a guarantor, make sure they have a good credit score and a good income. Individuals with a poor credit history will not be accepted as guarantors.
     
    Also, be aware that in the event of a default, the guarantor will be held responsible for settling your unpaid dues.
     

  3. Credit Record

    All types of loans require you to have a decent credit history. When you apply for a business loan, business credit card, or any other loan product, the lender looks at your credit report to see how disciplined you were in managing your previous debts.
     
    Any previous default or missed EMI will work against you and result in loan application rejection. If you have never applied for a loan before, choose a consumer durable loan and make on-time payments to build your credit history. After that, apply for a small business loan and make on-time EMI payments for it to make yourself eligible for larger loans in the future.
     

Eligibility Criteria for Business Loan without an ITR

  • Citizenship & Age: Must be an Indian citizen. Minimum age requirement is 21 years at the time of application. Maximum age at the end of the loan tenure should not exceed 65 years.
  • Occupation: Eligible categories include: Self-employed Professionals such as Architects, Chartered Accountants, Doctors, and Company Secretaries. Self-employed Non-Professionals including Sole Proprietors, Retailers, Traders, Manufacturers, and Service Providers. Entities such as Limited Liability Partnerships (LLPs), Private Limited Companies, Partnership Firms, and Trusts.
  • Work Experience: SMEs must have at least five years of experience in their current business.
  • Maximum Loan Tenure: The loan offers a maximum repayment term of 60 months (5 years).
  • Maximum Loan Amount: Borrowers can obtain funds ranging from Rs 3,00,000 to Rs 4,000,000. The actual amount is determined based on the borrower's business and credit profile.
  • Monthly Income: No specific income criteria are predefined for granting the business loan.
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Documents Needed to Apply for a Business Loan Without an ITR

 
  • Address Proof: Aadhaar Card, Property Tax Receipt, Voter ID Card, Driving Licence, Registry Copy, Utility Bill, Rent Agreement
  • Identity Proof: Driving License, Voter ID Card, Aadhar Card
  • Business Continuity Proof: Sales Tax Registration, VAT Registration, Trade License, Partnership Deed, SEBI or RBI issued Registration Certificate
  • Income Proof: Recent bank account statements
Also Read: Top 10 Factors to Consider Before Signing Your Business Loan Application 
 

How To Get A Business Loan Without ITR?

Getting a business loan without Income Tax Returns (ITR) can be challenging but not impossible, especially for new businesses or self-employed individuals who haven't filed ITRs yet. Here are several strategies and alternatives to consider:

  • Maintain a Healthy Credit Score: A good credit score (typically 700 or above) can demonstrate your creditworthiness to lenders. It shows that you have a history of responsibly managing credit, which can compensate for the lack of ITR.

  • Government Loan Schemes: Explore various government-backed loan schemes designed for small businesses and startups. These schemes often have relaxed eligibility criteria and may not require ITR. Examples include:

    • Mudra Loan

    • Stand-up India

    • PSB Loans

    • PMEGP (Prime Minister’s Employment Generation Programme)

    • NSIC (National Small Industries Corporation) Subsidy

  • Apply with a Co-Applicant: If you have a family member or business partner with a stable income and good credit history, consider applying for the loan together. Their financial credentials can strengthen your application.

  • Collateral-Based Loans: Offering collateral such as property, equipment, or other assets can significantly improve your chances of securing a loan without ITR. Lenders may be more willing to lend if there's collateral to secure the loan against.

  • Alternative Lenders: Explore options beyond traditional banks, such as non-banking financial companies (NBFCs) or online lenders. These institutions may have different eligibility criteria and may be more flexible regarding ITR requirements.

  • Personal Loans for Business: In the absence of business loans without ITR, consider applying for a personal loan. Personal loans for self-employed individuals often have simpler documentation requirements and can be used for business purposes. 

Hero FinCorp Can Help You Get a Business Loan?

Follow these steps to apply for a Business Loan online:

Step 1: Visit the online Business Loan application page on the Hero FinCorp website 

Step 2: Fill out an online application form and submit the required documents 

Step 3: Enter the amount of loan needed and select an appropriate tenure

Step 4: If you qualify, you will get a reference number for future use

Step 5: A representative will get in touch for more information if needed 

Step 6: Get a loan offer, accept it, and get disbursal directly into your bank account

Conclusion

Most financial institutions will not grant you a business loan if you have not filed an ITR. The ITR not only serves as proof of income but also informs lenders about your company's legitimacy and future potential. Lenders who approve your business loan application without an ITR would expect you to pay a high business loan interest rate. Even then, you would need to provide a guarantor or collateral for the loan.
 


 

Frequently Asked Questions

What is the minimum credit score required to qualify for a business loan?

While specific requirements vary among lenders, a credit score of at least 700 is often recommended to qualify for a business loan.

Do I need to provide collateral to get a business loan?

Collateral requirements depend on the lender and the loan amount. Some loans may require collateral, such as property or equipment, while others, especially smaller loans, may be unsecured.

Can I get a business loan if my business is new and has no credit history?

Yes, there are lenders who offer business loans tailored for startups and businesses with limited credit history. These loans often focus on other factors such as the business plan, projected cash flow, and personal creditworthiness.

How long does it take to get approved for a business loan?

The approval timeline varies based on the lender, the complexity of the loan application, and the completeness of the documentation provided. Typically, it can range from a few days to a few weeks.

What can I use a business loan for?

Business loans can be used for various purposes, including purchasing inventory, expanding operations, buying equipment, covering operating expenses, hiring employees, and marketing initiatives.

 

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any purchasing decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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