Is Form 16 required for a business loan?

Nowadays, with the government deciding to encourage small business growth in the country, individuals are encouraged to apply for small business loans. Avail a business loan through best of loan aggregators that help your credit score, lower interest rates and more with Buddy Loan.

Business loans can be unsecured business loans or secured business loans. Getting a small business loan has gotten much easier than in the past. Even a buddy loan can be availed for hassle-free borrowing.

One can apply for a small business loan through banks, i.e., the offline mode, or in case one prefers the easy, convenient mode, online business loans are also available. 

Various schemes with secured business loans (loans backed with some sort of collateral as security) as well as unsecured business loans (loans not backed with some sort of collateral as security) are available with banks as well as through online loan agencies. 

Applying for a business loan online is easy with the facility to upload documents online and the maximum turnaround time offered by many institutions in twenty-four hours. Some types of online loans are also approved instantly. 

Several documents are required when applying for a business loan.

The Credit Score is an essential document in that any lender, whether a bank or an institution providing online loans, will check the Credit Score to understand the credit history as well as the pattern of repayment. This is especially important in assessing the repayment potential of the borrower.

The age of the business, i.e., the number of years that the business is in operation, will be taken into consideration to check the stability of the business. 

The potential collateral that can be offered will also be considered in case of a secured business loan. The end use of the funds, i.e., the purpose for which the funds will be used, will also be taken into consideration. 

Although it is possible in theory to get a hundred per cent loan for starting a small business, most banks and financial institutions are wary of providing the same and prefer to give part-funding with some capital that is self-funded by the owner(s) of the small business.   

In most circumstances, it is the salaried people who want to start a small business to increase earnings and get the freedom to work in fields and areas they enjoy, as per their convenience. In such circumstances, banks and financial institutions may request Form 16 as evidence of past earnings.

Form 16 is a form that is to be mandatorily issued by companies and organizations to individuals who have worked in their organization, irrespective of any TDS (Tax Deducted at Source) deduction from the salary of the employee. Therefore, Form 16 serves the dual purpose of checking the employment status and stability of finance of the individual along with the income potential of the individual.

In case the business loan is taken through the route of a personal loan, Form 16 is asked by almost all banks and financial institutions. This is done to understand the level of income of the individual and the ability to repay the loan.

 Loans taken where the EMI (equated monthly instalment) is of a greater proportion to the income would mean that the ability to repay is reduced in certain circumstances. Banks and financial institutions prefer to have certain ratios when it comes to the income potential as well as the EMI (equated monthly instalment). This is the area where Form 16 is of great help to banks as well as financial institutions.