Mr. Gopal is a proprietor of a small company, which is a new start – up. Gopal is planning to purchase a new residential apartment for his family. Gopal ran pillar to post, made multiple loan enquiries with the home loan lenders for his housing loan requirement. He also applied with the lenders (Bank/NBFC/HFC) but faced rejections. Tired of the rejections, Gopal thought of applying for a mortgage loan, by providing property security to the bank instead of going for a house loan, yet faced rejection of his mortgage loan application.
Why was he not eligible for a loan? Let us see what are the reasons for his loan rejections.
Lenders (Bank/NBFC/HFC) have their own guidelines, have their own funding rules and regulations, which makes a borrower eligible or non-eligible for a loan. Mentioned below are 8 such conditions of the businesses for the self-employed: –
Business Conditions for Self –Employed Applying for Home Loan and Mortgage Loan:
1) Business Age:-
How old is the business? is very important. Since how long the borrower is running the business i.e., the business continuity, does matter. Number of years into the business decides whether he qualifies to get a home loan. It is one of the important conditions of the lenders because it shows the regularity of the borrower’s income. A business should be a minimum 3 years old.
2) Business Proof: –
The business must be registered and a loan borrower must have a proper business proof. Company Pan Card, Ghumastha license, MSME registration certificate, Aadhar Udyog, valid Partnership Deed, GST, etc. are the valid business proofs.
3) Company Profile: –
Borrower must provide company profile details on its company letterhead. The company profile must contain company details, official address, registered address, company owners/directors/partners, company structure, type of company, company incorporation date, nature of business, number of employees, etc.
4) Mandatory Office:-
Residence cum office operation of the businesses is usually not considered by the lenders. If the loan borrower is running/operating his business from home, such a profile may not be considered for applying for a loan by some of the banks. For example, home tuitions, commission agents, brokers, insurance agents, real estate brokers are some of the profiles of the borrower which may face difficulty in applying for a loan. For such profiles who operate their business from home, banks have special products under which they make them qualify for a loan. But remember, under such a product, the borrower may require to pay higher charges and interest rates to get the loan.
5) Current Account: –
Any self-employed individual whether, proprietor, partner, director, professional, free lancer and even the profiles with residence come office business operations, it is mandatory to have a current account. All the business transactions must route only through the current account. Current account with any bank either private or a nationalized bank is acceptable.
6) Banking Transactions:-
Just by merely opening the current account is not beneficial. The current account must reflect his business transactions. At times the borrower may not be eligible for loan as per the ITR copy but if he has maintained good banking transactions, he might be eligible for loan under the banking product. Banking transactions and average balance maintained in the account is the basis of the banking product.
7) ITR Copy:-
Latest 3 years duly filled ITR copy is mandatory along with Saral Copy, computation of income, Balance Sheet, Profit & Loss account and Capital Account.
ITR must be filled on year-on-year basis. Same dated ITR for the last 2 years is not accepted. A minimum of 6 months gap between the fillings of the two ITR is mandatory.
For self-employed of new start-ups, companies with ITR not filled, loans cannot be provided.
8) Cash Income Not Considered: –
No cash income is considered for home loan or mortgage loan. If the borrower is running a business and is making cash profits and cash incomes, such income is not considered for loan. Cash incomes of the LIG, EWS & MIG categories can be considered only for availing a home loan under PMAY Affordable Housing Loan schemes. Examples of small cash business are, home tuitions, vegetable vendors, scrap business, pan shop, general store, grocery shop, etc. However, some lenders may also consider providing a home loan to a loan borrower other than the LIG, EWS & MIG provided he maintains a proper cash register of his sales. The cash register must maintain the daily sales figures and the entries of day-to-day cash expenses and incomes. However, the borrower with cash income is exceptionally charged with higher interest rates and fees.
On the other hand, cash income for availing a mortgage loan is usually not considered by the lenders – Bank/NBFC/HFC.
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