7 rules young entrepreneurs should note for getting loans

Don't forget to get a formal contract inked from all your clients or ask for Form 16 (a), in case they are deducting TDS from your payments.

November 04, 2014 / 02:48 PM IST

Adhil ShettyBankBazaar.comVignesh is a freelance writer operating from his home office and he works with companies both in India and abroad. He has taken the route of entrepreneurship since 2 years, after quitted his full time job with a multi-national company. Last month, he approached a bank for taking a home loan and the relationship manager after enquiring about his annual income, told him that everything will be fine. But when Vignesh submitted his application, he faced with a rejection from the credit manager’s desk. After discussing with the manager he came to know that his loan was rejected because of two things:1) Lack of documents to support his income. The credit manager had called for Form 16 A or appointment letter

2) His nature of job was not listed in the bank’s approved listFreelancing or working from home becoming a common phenomenon today, many people who belong to this category and many entrepreneurs working in the digital space face this difficulty while approaching a bank for loan. Many bank mangers do not understand the concepts of digital businesses or new age businesses, or even if they understand, it will be outside the rules laid by the banks ( which is often drafted years back) and it becomes outside their authority to sanction loans for such cases.So let us see how today’s new age entrepreneurs should be equipped themselves foreseeing the future chances of facing a bank credit manager.Ink all contracts

Many of today’s new age businesses run over e-mail or phone communications. For example if you are a web designer working for clients both within the country and outside, or a writer working for various media houses, you may not receive appointment letters or official orders from your clients, but the deals will be fixed over phone or mail.

But banks will not consider such cases even if you have proofs of payment transfers from various ends to your bank account. You may be filing IT for the income receiving, but that may not be sufficient for the bank to approve your loan.

So don’t forget to get a formal contract inked from all your clients or ask for Form 16 (a), in case they are deducting TDS from your payments.Have a well drafted business planMany banks won’t understand many new age businesses, especially those associated with the digital media. So if you are a digital entrepreneur, get ready with a professionally drafted business plan, stating the vision and mission of the company, revenue model, achievements, milestones etc which will be helpful for impressing the officials.File your taxes on timeMany young entrepreneurs are not prompt in tax filing and make it a practice of filing 2 or more years together before applying for a bank loan. The result will be a straight rejection of your loan application. All banks require latest 3 years ITRs filed before due dates of the respective years. So ensure your accounts and tax filings are prompt and taken care well before you approach a bank.Showing less income in ITRIt is a common practice among many entrepreneurs to show less take home while filing ITR to save tax. Cash outflow in terms of ballooned expenses, mock purchases, rental income all may help them in saving tax; but remember, banks will sanction a loan only by considering the gross income after all expenses, as shown in the ITR, ie, for the amount which you paid tax. If you were thinking that the projected P & L account as well as your bank statement shows all your income flow, it’s time to re-think. Decide the loan which you would want to take and check your eligibility online. Now consult your CA for showing actual income in the next tax filing, or if it takes time, file advance tax to present it before the bank.Present all bank statementsEntrepreneurs are notorious for maintaining multiple bank accounts. If you are operating with multiple bank accounts, don’t forget to submit updated bank statements of all the accounts, even if some accounts are not operated since long time. This is because, banks have their mechanisms to trace all bank accounts in your name, and if you are not presenting it to the bank, the loan processing may get delayed, and more over, remember banks will always look an entrepreneur with suspicious eyes.Previous employment detailsTaking a turn from being an employee to donning the hat of an entrepreneur doesn’t mean that your previous employment details are of no use anymore. If you are less than 4 years in your current profile, it is mandatory to submit your previous employment details with the bank. This helps to verify your job continuity and profile and to get judged as a reliable person. And remember, the credit manager may ask you the reason for quitting your full time job and you should have a clear and justifiable reason for the same.Graduation / Professional degree certificateGraduation / professional degree certificate as a sanction document is not mentioned in the checklist of most banks. But if you keep a copy of your graduation /professional degree certificate along with your loan application, it will definitely help you. Introducing yourself as a professionally qualified person or as a management graduate from a reputed institute only enhances your chances for loan sanctioning and also to get higher amount as loan, as banks can assess your professionalism and future chances of growth from your profile. No wonder IITans and IIMs are getting loans sanctioned even if they are in business less than a year.