Your Income Tax Return is your declaration to the Income Tax Department that you have earned the annual income stated on it. It also states the fact that you have paid the income tax against it or you are eligible for a tax refund and discloses your tax-free investments and expenses.
An ITR is a document that is considered to be authentic proof by prospective lenders to gauge your business loan eligibility and repayment capacity for any loan for that matter. However, by the end of 2020, only 3.75 crore people had filed their ITRs. This leaves a vast majority of people who haven’t file their ITR. This could be a hindrance when they plan to apply for a business loan.
Who can apply for a business loan without an ITR, and why?
Apart from individuals and sole proprietorships, companies, partnerships, trusts, LLPs, cooperative societies and NGOs can also apply for a business loan.
Generally, a startup or any new business may have a justified reason for not filing ITRs. Business owners who have been unemployed for a long time may have chosen not to file ITR. In some cases, a new business might not have the necessary documents or might be inexperienced at filing an ITR. However, in such cases, the ability to pay the business loan EMI may be questioned by the lender.
Where can you look for a business loan?
If you have not filed an ITR, you may check your business loan eligibility and apply through one of the following means:
Banks and NBFCs – Public and private banks, and NBFCs are the most popular choice for a business loan. In the absence of an ITR, you may be required to pay higher business loan interest rates. Use a business loan EMI calculator to check if your business can afford the EMI burden.
Government schemes – Government has more lenient schemes for business credit flow, particularly when it concerns MSMEs, first-time businesses, and startup owners. Some of the popular government-backed loan schemes include MUDRA, Prime Minister’s Employment Generation Scheme, Stand Up India, PSB loans in 59 minutes, SIDBI Make in India Soft Loan Fund for MSMEs, subsidy under National Small industry Corporation, etc.
A healthy credit score can compensate for the absence of an ITR. A high credit score also lowers your business loan interest rates. It is a reflection of the timeliness of your payments against liabilities and bills. Improving it to as much higher above 700 as possible is recommended. It also helps if your bank statement has a good transaction history and reflects a decent income flow.
Before finalizing a business loan without an ITR, make sure that you check a business loan EMI calculator and the EMI burden on your budget. With a good credit score and a healthy banking record, you can avail of the loan your business needs to grow further.