Documents required for MSME loan

According to a report by TransUnion SIBIL and CIDBI, as of December 2018, banks and other such financial institutions lent small business loans at 19.2 % annually. This was among the fastest-growing credit segments. These days, small business loans have become a lot easier thanks to the many options.

So, if you want to set up a small business, you can take out a business loan in no time since the paperwork is quicker than it was before. However, the only requirement is that you must have the list of all the necessary documents required for MSME loan.

While the documents required for MSME loan vary from one lender to the other, you should still ensure that you have the following set of documents with you when you avail of such loans.

General Documents Required for MSME Loan

There is a set of documents that you should have with you when taking out any loan, including MSME loans. Major lenders such as banks and other financial institutions need them for verification purposes. The general documents needed for MSME loan are as follows:

1. Identity Proof

When filling out an application form for availing a loan for your MSME, you need to provide identity proof, such as a PAN or Aadhaar Card, Voter ID, passport, or a driving license, as part of the documents required for MSME loan.

2. Address Proof

In addition to identity proof, you must also provide address proof as part of the documents required for MSME loan. For this, you can provide a copy of your rental or lease agreements, ration cards, or even utility bills that have information related to where you reside.

3. Passport-Size Photographs

You must submit a couple of passport-sized photographs for KYC verification. The pictures allow lenders to verify your identity before they process and disburse the money. So, be sure to have these documents required for MSME loan with you when you.

Financial Documents Required for MSME Loan

As part of the documents required for the MSME loan, lenders may also ask you to submit your financial records such as bank statements, the company’s or business balance sheet, sales and municipal tax documents, and a copy of the income tax returns they can process the loan. So, make sure that you have these documents with you when you apply for a loan.

1. Bank Statements

Previous or past bank statements are primary requirements for all lenders, including banks and NBFCs, to process and disburse MSME loans. So, you need to furnish your bank account details of at least previous years as part of the documents required for MSME loan.

2. Sales and Municipal Tax

All businesses must pay municipal taxes. So, you must provide proof of having paid these taxes. Also, if you sell products or services as part of your small business, you need to pay sales taxes and furnish those details to the lender.

3. Income Tax Returns

Besides sales and municipal tax documents required for MSME loan, you must also submit your income tax returns for the previous two years. ITR returns will help lenders check if you are paying your taxes on time and determine if you can repay the loan.

4. Collateral Documents

Since you are availing of a loan, you also need to provide some collateral as part of the documents required for MSME loan. The collateral that you offer will help lenders ensure that you will repay them in time.

Business-Related Documents

Lenders will also ask you for various other documents required for MSME loan, such as the proof of having registered the company and PAN details of both the business and its proprietors.

1. Business Registration Proof

Before you can commence operations, you must get your business registered and share the proof with the lender as part of the documents required for the MSME loan. When you get your business registered, you will get a certificate of registration. However, some lenders will ask for more than just the certificate of registration, as part of the documents required for MSME loan. So, in addition to this certificate, you may need to provide the memorandum and articles of association and other such documents that prove your business or company exists.

2. Proprietor and Company PAN Cards

The proprietor and company or business PAN cards are another essential set of documents required for MSME loan. Lenders need these details to verify your identity and the credibility of your business.

3. Balance Sheet

You also need to provide the latest balance sheet that tells lenders about your company’s activities as part of the documents required for MSME loan. By looking at the company’s balance sheet and profit and loss statements, lenders can verify your income sources and ascertain whether you will repay the loan.

4. Turnover

You may have already set up a business and are seeking a loan for expansion or other purposes. So, you may also need to provide proof of how much turnover your business is making or would make during its operations as part of the documents required for MSME loan. Evidence of turnover, again, will reassure lenders that you will be able to repay them.

Documents Required for MSME Loan Registration

Besides the documents needed for verification purposes, you also need to provide other documents required for MSME loan that allow the lender to verify the type of business you are about to establish.

There are four kinds of businesses that you can establish, including sole proprietorship, public and private companies, and partnership firms. For this, you need to register your MSME if you haven’t already done so by following these steps:

1. Visit the official Udyam registration website.
2. If you are already not a registered member, click on the link that says, ‘New entrepreneurs who are not registered yet as MSME or those with EM-II.’
3. Provide your Aadhar details along with your name, and press, ‘Validate and Generate OTP.’ When you click on ‘Validate and Generate OTP,’ you will receive a one-time password on your mobile.
4. Enter this one-time password and click on ‘Validate’ to verify your details. Note that you may also need to provide your PAN details and which organization you belong to for successful validation.
5. After successfully validating your Aadhaar and PAN cards, you must furnish information related to the industry that the company you are about to set up belongs to and other such details.
6. Once you provide this information, you can then submit the form by selecting ‘Submit and Get Final OTP.’ When you press ‘Submit and Get Final OTP,’ you will get an OTP on your mobile, which you must enter to complete the registration.

If you are already registered or have a UAM, you can follow these steps to get your MSME validated:

1. Visit the official Udyam registration website.
2. Since you are already registered, you can click on the link that says, ‘For those having registration as UAM,’ or ‘For those already having registration as UAM through Assisted filing.’
3. Enter your Aadhaar details and click on ‘Generate OTP.’ Note that this time you can choose to receive the one-time password to your mobile number or email.
4. Enter the one-time password and complete the registration.

Final Thoughts

The documents required for MSME loan may vary depending on the lender. For example, while some lenders may ask only for two sets of documents, others may ask for more.

Also, at times, only submitting the documents required for MSME loan may not be enough to process your loan application. Most lenders, such as banks and other financial institutions, have specific eligibility criteria to qualify for getting a loan. These eligibility criteria are not standard and vary from one lender to the other.

So, when applying for a loan to fund your small business, you must research the different lenders, their rates, and the documents you will need to submit to process the loan application and disburse the money.

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FAQs

Q. Which Businesses Are Eligible for MSME Loans?

Ans. Only the service and manufacturing sectors whose investments don’t exceed Rs. 10 Crore are eligible for MSME loans.

Q. What is an MSME?

Ans. MSMEs or Micro Small and Medium Enterprises came forth with the introduction of the MSMED Act or the Micro Small and Medium Enterprises Development Act. MSMEs comprise two sectors: the manufacturing and service sectors.

Q. Do I Mandatorily Need to Furnish GST Details for Availing of MSME Loans?

Ans. Yes, GST details are mandatory documents required for MSME loan.