Personal Loan for Self Employed

Self employed are individuals who are not salaried and earn their income by running their own incorporated business. Self Employed can be divided into 2 categories

• Self employed professionals: Banks categories doctors, dentists, surgeons practicing from own clinics chartered accountant, architects, consultants, interior designers as Self Employed Professionals (SEP)
• Self employed non professionals: These are business which are not categorised under self employed professionals and can be manufacturing, trading or services business enterprises.

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Personal loans which are offered without collateral are easy and instant loan for self employed in India to meet their short term urgent personal or business expenses requirements. For salaried individuals, personal loan are given based on their income, job stability, size and reputation of the company they work for, CIBIL score and other eligibility factors. It is easier for salaried to get approval on a loan application as they can provide income proofs in the form of salary slips, ITRs and Form 16 from their companies.

However, when it comes to self employed, banks have to rely on the income tax returns and audited financial statements of businesses which are prepared and submitted by self employed and businesses on their own. Hence, in many cases there is a risk that the revenues and profits may be under-reported in a bid to save tax or over-reported when the business is trying to get funds.

If you are a self employed and want to take a loan from bank for your business purposes, you will be required to meet the following eligibility criteria:

Parameter	Eligiblity Criteria
Eligibile Entities	Self Employed Professionals such as Doctors, Chartered Accountants, CS, Architects and others
Eligible Age	Within age of 21 to 65 years
Income Tax Returns (ITR)	Borrower should have filed ITRs for a minimum of 2 to 3 years
Gross Annual Receipts	Gross Annual Revenue ( Income) of the borrower should be more than ₹ 5 Lakh or more
Work Experience	Should have been running the practice for more than 3 years
Banking Stability	6 months bank statements checked for average bank balance, number of transactions and cheque bounces
CIBIL Score	650 or above

ITR – When you apply for personal loan as a self employed, it is mandatory to have filed ITR in previous years. Banks and NBFCs will give you loan if you have filed ITR of minimum 2 years. Some banks and finance companies may require you to submit ITRs of minimum 3 years. Your monthly income is evaluated on the basis of submitted ITRs which help in determining your repayment capacity.
Interest rate can be lower if you have submitted ITR as per bank's norms and have more chances to get loan.

Gross Annual Receipts - For self employed professionals, Gross Annual Receipts is the income earned without subtracting any cost or expenses during the annual accounting period. Most banks and NBFCs will give professional loan for doctors and other professionals with minimum GAR of ₹ 5 Lakh. However, check this carefully as few NBFCs and banks will approve an unsecured personal loan only to self employed with minimum Gross Annual Receipts of ₹ 10-15 lakh.

Work Experience – Years of Work experience is an important factor considered by banks and NBFCs to take a decision to give you approval on your loan application form. It gives the bank or NBFC an assurance that you can repay the loan on time. Banks typically give Professional loan for doctors, lawyers, CA, CS and architects with minimum work experience of 3 years. However, some banks and personal finance companies may insist on a vintage of 5 years as well.

Banking Stability – Banks and NBFCs will study your banking history based on information in your bank statements of minimum 6 months to approve your loan. Banks evaluate your average account balance to evaluate your banking stability and capacity to repay the loan. Banks will also evaluate your outbound and inbound cheque bounce information to ascertain your credit track record.

Credit History –Most banks will consider your credit score before taking a lending decision. In the case of self employed, the bank will check the CIBIL of an individual as well as that of his firm and in some cases, the CIBIL score of joint owners in the business. As a businessmen, a positive credit repayment track record and a good credit score will increase your chances of getting an easy loan from the bank.

Age – Banks will give you a loan if you have minimum age of 25 years and maximum upto 65 years at the time of loan maturity. However, some banks also give loans at the age of 23 years also.

Other Factors: While taking a decision to give a personal loan to self employed, the bank will also look at other properties owned by the borrower. For instance, a borrower living in his own residence or operating from an owned office will have a better chance of getting a loan approval. Banks also evaluate the past three years VAT returns to get a sense of the real turnover of the business and to ensure that timely tax has been paid to the government.

A self-employed may find it difficult to get a personal loan for professionals with a low credit score. Banks are not keen to offer an unsecured loan your loan if you have low CIBIL score as lenders perceive the risk of default as high in such cases. Hence, in cases of low credit score, borrowers have a higher chance of getting a secured loans such as mortgage loan or a gold loan.
Mortgage loans can be an attractive loan option for self-employed borrowers if they are looking for bad credit loans or low interest loans. Banks do a CIBIL score check for mortgage loans, but unlike a personal loan may sanction your loan with a lower credit score.
Gold Loans are the best loans for self-employed professionals with bad credit score as they are instant loans which can be availed with no financial documents and without a CIBIL check.
In addition to availing a mortgage loan or gold loans, you can also consider approaching NBFCs that are willing to extend credit to customers for slightly low credit scores subject to availability of collaterals, guarantees, past settlements. However, such loans are available at higher interest rates compared to other available loans in the market.

Similar to bad credit personal loan, it is difficult to get a personal loan for self employed with no proof of income such as three years ITRs or audited financial statements. You may be struggling to get a loan if you do not have complete financial documents or do not have a credit history. Bank finds it difficult to estimate your repayment capability and hence, may not sanction a loan to you.
In these cases also, availing a gold loan which does not require a CIBIL score or any financial documents may be one of the best available personal loan for self employed and professionals.

EMI for personal loan for self employed works on the same factors as that of a salaried borrower -

• Loan amount – Higher the loan amount, higher is your loan EMI. Your loan amount eligibility will be a function of all factors related to turnover, growth, profitability, age, banking history and CIBIL score as discussed above.
• Interest rates – Lower interest rates reduce your amount of EMI whereas higher rates increases your EMI. Your interest rate will also be a function of an assessment of your risk profile by the bank. Higher the risk profile as per the credit assessment process of the bank, higher will be the interest rate.
• Loan tenure – Applying for a loan for short period can raise your EMI or vice – versa.

Here are few illustrations which will help you to understand how the above mentioned 3 factors can impact your EMI

Mr. A who is a doctor by profession wants to open a new clinic for which he needs ₹ 10 Lakh. He has a business stability of 3 years, has regularly filed ITRs and has a current net income of ₹ 60,000 per month. He is eligible for a personal loan of ₹ 10 Lakh from Bank X for a tenure of 5 years and an interest rate of 14%. The doctor, Mr. A has to pay an EMI of ₹ 23,268 for this loan.

Mr. B is an architect from Ahmedabad with experience of more than 5 years. He wants to open his firm in Gujarat. He is short of ₹ 10 Lakh in total amount for which he takes personal loan from the bank after submitting all the essential documents (KYC, ITR of 3 years, bank statement of 12 month). He has Ggross Annual Receipt of ₹ 20 Lakh. Hisank sacntions him a professional loans for 5 year repayment tenure at 15.60% interest rate. In this case, Mr. B has to pay an EMI of₹ 24,106 per month.

Mr. C who is a CA by profession and have been setup his office in Delhi since 2010. Now, he wants to extend the same office as he is less of some space for which he needs a fund of ₹ 5 Lakh. He gets loan at 14% rate for 3 years as he is earning ₹ 1,00,000 per month and can comfortably repay the loan in 3 years. The EMI he has to pay every month is ₹ 17,089.

The table given below gives the EMI record of all the 3 cases discussed to understand the impact of various loan terms such as loan amount, loan interest and loan tenure on monthly EMI.

Name	Loan Amount (Rs.)	Interest Rate	Loan Tenure	EMI per month (Rs.)
Mr. A	10 Lakh	14.00%	5 years	23,268
Mr. B	10 Lakh	15.60%	5 years	24,106
Mr. C	5 Lakh	14.00%	3 years	17,089

• Signed application form
• Passport size photographs
• Income Tax PAN copy
• Identity proof – Passport/ Driving License/ Voter ID/ PAN
• Address proof – Registered rent agreement/ utility bills which are not more than 3 months old/ Passport
• Income proof – ITR of last 2 – 3 years and 6 months bank statement
• Business existence proof – Service tax registration/ VAT/ business address proof/incorporation details in case of companies/ partnership deed
• VAT Returns and GST registration number

✅Which is the best personal loan for professionals?

Based on a comparison of interest rates on personal loan for self employed of all banks in India, Canara Bank, Axis Finance is the best bank this loan as it offers the lowest interest rate of 13.00% on unsecured loans.

✅Do I need a collateral to avail a personal loan?

As personal loan is an unsecured loan, banks do not ask for any collateral or security. Banks will do a thorough assessment of your ITRs, financial documents and other income related documents to check your eligibility.

✅Is there any option for takeover of self employed personal loan?

Yes, banks give the option to transfer your loan from existing bank to a new bank offering lower rate of interest on personal loan.

✅Do I have to pay charges if I want to preclose my loan?

Yes, banks levy charges upto 5% if you want to preclose your loan before the end of your tenure.

✅How can CIBIL score impact my loan application?

Banks approve your personal loan application if you have a CIBIL score of 700 and above. If you have no or poor CIBIL record then bank might reject your loan application or give loan at higher interest rate.

✅What is the tenure of personal loan for self employed professionals?

The loan can be taken for a minimum period of 12 months to upto 60 months.

✅Why should I take a personal loan for self-employed?

You can get a Personal loan approved easily with no collateral and minimum documentation required to meet your short term personal or business expenses requirements.

✅Can I get a personal loan on ITR?

Yes, if you have filed ITR for a minimum of 2-3 years, you can get a personal loan on ITR.

✅How can I get a personal loan without proof of income?

If you have a good relationship with your bank, then the bank can give you a personal loan without income proof based on your timely payments and credit score.