Self employed people are those who work for themselves as a freelance or as an owner of a business instead of working for an employer. They are broadly divided into 2 categories –
- Self employed professionals(SEP)- largely includes doctors, practicing from own clinics, chartered accountant, architects, consultants, interior designers, etc.
- Self employed non professionals: These not categorized business, and might include manufacturing, trading or services business enterprises.
In India, personal loans are readily available without collateral. For the salaried, Instant personal loan are given based on their income, job stability, reputation of employer or company, CIBIL score, etc. It is easier to get approval for a personal loan for salaried individuals as they can provide income proofs in the form of salary slips, ITRs and Form 16 from their companies.
However, for the self employed banks rely on the income tax returns and audited financial statements of the individual’s business. There is always the risk that the revenues and profits may be not be correctly reported in order to save tax or to get funds.
Personal Loan Eligibility for Self Employed
- Individuals eligible are Self Employed Professionals(SEP) as Doctors, Chartered Accountants, Architects, etc.
- Age range should be between 25 to 65 years to be applicable for the loan.
- Should have filed Income Tax Returns for a minimum of 2 to 3 years. Your income is assesed on the basis of submitted ITRs which help in determining your repayment capacity. If you have submitted ITR as per bank’s norms you can avail lower interest rate and increase your chances to get loan.
- Gross Annual Receipts for self employed professionals, is the income earned prior to deduction of any cost or expenses for the annual accounting period. Usually banks and NBFCs will give loans if Gross Annual Revenue receipts is more than Rs. 5 Lakhs.
- Work Experience is an important factor considered by banks and NBFCs for approving your loan application form. Bank or NBFC need an assurance of repayment of the loan on time. They should have running the practice of more than 3 years.
- Bank stability is significant and the banks/NBFCs study the statements of 6 months for average bank balance, number of transactions and cheque bounces to ascertain your credit track record.
- The CIBIL of an individual and his firm and also the CIBIL score of joint owners in the business. CIBIL Score should be 650 or above for the bank to approve for the loan. As a self employed businessman, a positive credit repayment record and a good credit score increases your chances of getting an easy loan.
- The bank will also look in to other details like other properties owned by the borrower, if he is living in his own residence or operating from an owned office.
When Self Employed has a Bad Credit Score
In case of low credit score, the borrowers can opt for getting a secured loan such as mortgage loan or a gold loan. Banks undergo a CIBIL score check for mortgage loans too, but unlike a personal loan they may sanction your loan even with a lower credit score.
Gold Loans are the most appropriate loans for self-employed professionals with bad credit score as they are instant loan which can be availed with no financial documents and without a CIBIL check. In addition to these options, some NBFCs that are willing to extend credit to customers for slightly low credit scores subject to availability of collateral’s, guarantees, past settlements, though such loans are available at higher interest rates.
When Self Employed is without Financial Documents
Similar to bad credit score, 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. Bank finds it difficult to estimate your repayment capability and hence, may not sanction your loan. So availing a gold loan which does not require a CIBIL score or any financial documents may be one of the best available alternative for self employed and professionals.