Introduction

Most small business owners approach banks and financial institutions with a request for a business loan, and the chances of getting that sanctioned are less. Among the most essential documents that the lenders expect the applicant to submit while getting a loan sanctioned, an Income Tax Return comes at the top - known popularly as ITR.

This article explains why ITR is essential in the process of securing a business loan and also speaks about how probable way that one can get a business loan without an ITR.

Why ITR Is Important to Obtain Business Loan

1. Proof of Income and Financial Stability

While seeking an unsecured business loan, one needs to provide evidence that he or she is capable of repaying the loan. The ITR is an official paper that will show your income for a certain period, usually the last three to five years. The lender gets to see a reflection of revenues and profits, as well as the taxes you pay. This way, they gain confidence in your financial stability. Without an ITR, it will be difficult to determine your ability to pay; hence your loan application might not be approved.

2. It shows Business Growth and Profitability

The ITR is the main indicator of how well your business is performing. If your ITR has consistently been filed, then it shows that your business has been growing and generating profits. Lenders always prefer to offer loans to those businesses showing consistent growth because this assures them that the business is likely to prosper in the years ahead. A business that files ITRs reflecting profitable growth is more likely to get a loan approved because this postures the good financial health condition of that business.

3. Legitimacy of the Business

Filing an ITR regularly proves that your business is legally compliant. It proves that you follow the government's tax regulations; thereby your business appears more trustworthy in front of lenders. Any financial institution will be happier when it offers loans to a business whose tax record is clean. The ITR also acts as a document that can be verified with the income tax department while giving your loan application legitimacy.

4. Higher Loan Amount Requiring

It is again in situations where you may need a large amount of loan to invest in a business or even large-scale projects. In such cases, an ITR becomes a main requirement. The lenders take it very lightly for minor amount loans, but they require better income proof and the ability to repay when they are to be disbursed on a higher amount. Although it shows that your business is capable of undertaking much larger loans if you have filed an ITR for three or more consecutive years, lenders may either reject your proposal or give you a lesser amount with a higher rate of interest in case you do not have this document.

5. Better Interest Rates and Terms

For instance, a lender can provide good loan terms to a business that has good financial track records, say at a lower interest rate or with flexible repayment schedules. A lender is likely to offer favorable loan terms, such as a low interest or flexible repayment schedules, to a business that has a good financial track record because the ITR presents a reflection of your business's financial health and stability. A business that has in good financial track record will have had a history of filing their ITR, thus supporting less risk among lenders, thus the more favorable loan offers for such a business.

Getting a Business Loan Without ITR Form

Even though you get more chances for an instant business loan when you have your ITR, there is the possibility of getting a loan without an ITR. The entire process might get tough but possible. Here are some ways to get a business loan when you do not hold an ITR:

1. Other income proof

If you do not have an ITR, lenders will still consider your loan application if you can provide alternative proof of income through other documents like bank statements, profit and loss statements, sales records, and even audited financial statements that could represent your business income. Such details display the cash flow and profitability of your business and might be used to better convince the lender about your repayment capability.

2. Borrowing Small Loans or Non-traditional Lenders

In addition, smaller businesses that have not filed ITR yet may still have access to smaller loans. Certain NBFCs or fintech lenders provide loans that are not dependent on ITR submissions, with higher rates of interest and strings to repayment terms. Alternative lenders are typically more flexible than the usual banks, but the applied loan terms may not be equivalent.

3. Loans Against Collateral

If your business owns assets, including property, machinery, or inventory, you can apply for a collateral-based loan. Here, the lender will provide you with the funds after calculating the value of the asset you pledged. Since the loan is secured with collateral, lenders may not require an ITR to approve your application. However, you have to be watchful with regard to collateral-based loans since if you fail to service the loan, the pledged asset may be lost.

4. Personal Loans for Business Use

The other option is a personal loan, provided you are not being able to receive a formal business loan without an ITR. A few banks provide personal loans based on an individual's credit score and income. You may get such a personal loan to satisfy your business requirements. However, the interest rates for personal loans are higher than those for business loans, and the loan amounts are lesser.

Conclusion

The ITR greatly enhances the possibility of obtaining a loan with more favorable interest rates and greater favorable loan amounts. However, if one cannot come up with an ITR, there are always other options on which one can fall back. This could be income proofs from different sources, collateral-based loans, or even credits from non-traditional financing institutions or individuals within NBFCs as well. There also could be personal loans for business-only usage. Although these carry more harsh terms, they give reliable business solutions for financially strapped ventures.

NBFCs are highly important in providing finance to businesses; most small and medium enterprises, which do not find it easy to get access to traditional banks for loans. The terms for an NBFC loan are generally flexible and do not always demand strict documentation, such as an ITR, which is a reason to be attracted to these NBFCs, especially when the companies have limited financial records. Although they could charge more than banks, NBFCs help close the gap between businesses that need credit and avail themselves of much-needed funds so that their companies can scale and grow.

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