Self employment is exciting because you are your own boss, freedom from 9-5 job, no more dealing with irritating bosses etc. But on the other hand it has many other challenges the major one being the irregular income depending on the type of business such as no employment security, increased expenses such as managing day to day office expenses, employee and their salaries, infrastructure etc.
However financial emergency can hit anyone at anytime and in such situations self employed have to manage everything on their own in addition to the above mentioned expenses (assuming they do not have any other income source). So during such time, personal loan can come as a big rescuer for the self employed. However credit lenders have different rules and regulations for them because unlike salaried individuals they do not have regular income and yet they have higher expenses.
Almost every bank in India offers personal loan for self employed professionals/public/private firms. However the eligibility criterion differs compared to salaried person in terms of the following. Applicant can also visit bank’s website and make use of eligibility calculator.
- Age: This varies for each bank. For e.g. ICICI bank has set a minimum age limit of 28 years whereas HDFC asks for 21 years.
- Monthly Income: This is required by the bank to evaluate the repayment capacity of the self employed and again it varies for each bank. For e.g. State bank of India has minimum annual income requirement of Rs. 2, 50, 000 whereas HDFC bank asks for Rs. 10, 00, 000.
- Business Turnover: Minimum 15 lac
- Business continuation: This is the most important criteria banks consider to check the potential of the personal loan applicant. Ideally banks want an individual should be in business for atleast 5 years.
- Interest rate is mostly same for each bank and is in the range of 12%-20%
Documents required for personal loan for self employed:
Similar to the eligibility criterion, documents required for personal loan also differ:
- Know your customer documents: This includes proof for date of birth, permanent address, and identity. For address proof, personal loan applicant should submit any one of these – leave and license agreement, utility bill (landline/electricity) or passport.
- Bank statement for the last 6 months.
- Address proof of the company office, its ownership and business continuation.
- Income tax return statement for last 2-3 years.
Most of the banks have simplified the personal loan application process as they are unsecured. To apply following options are available for the users:
- Online application on the bank website
- Over phone
- Visit bank personally
- Send a mail on their office address
Benefits of personal loan for self employed or those who have their own business is that the money can be used for any purpose such as business running slow or there is an immediate need for expanding the business.
Things to keep in mind before opting for personal loan:
In addition to the interest rate, there are various other charges and conditions which are overlooked by the loan applicant as follows:
- Loan pre-payment can be done only after certain time frame. Normally after 180 days.
When loan is processed, additional charge is applied which is 2% or higher excluding the service tax. This is known as processing charge.
- Late repayment charges: When it comes to self employed there is often a risk associated when for making repayment because cash inflow is not always consistent especially when business is running slow etc. However banks will apply extra charge every month for the late payment.
- In addition to these; charges for duplicate account statement, cheque bounce, cheque swap, foreclosure, photocopy of loan agreement, loan cancellation, EMI cycle change, no due certificate and others.
Every bank will apply different charges for personal loan, so it’s always suggested to get into every minute detail before applying for any type of a loan.