The salaried class is dream category for banks when it comes to making lending decisions. After all, those in the category have a stable source of income and they seem to be the best placed to deal with equated monthly instalments. High-flyers with fat salary cheques even get loans 'pre-approved' — lending institutions are only more than happy to do so. For them, the loan application and sanction process is reasonably hassle free.
For the self-employed class of borrowers, however, things are a little different. But, do note that not everybody in this category might face difficulties. In fact, some may find the going easier than their salaried counterparts. For instance, most salaried borrowers look at a loan to finance 80% of their house purchase cost. In contrast, a self-employed businessman or professional could typically ask for the LTV (loan-to value) ratio of just 55% to 60%, in which case the bank's comfort would obviously be higher. Similarly, self employed professional like chartered accountants or doctors, too, could be looked upon favourably by banks.
All that the bank wants to ensure is that you have the ability to fulfil your monthly repayment commitments.
DOCUMENTATION
Ensure that your income proofs are in order. You could be drawing your income from several sources – dividend from business, interest on capital, etc – and the one document that could document all these would be the income statement submitted to the Income Tax department. Banks ask for this document along with three-years' I-T returns.
In addition, you also need to submit balance sheet and profit & loss statements certified by a chartered accountant. In case of professionals, their earnings would be reflected in their financial statements.
NEXT STEP
Then, banks could insist on a personal discussion with the owner/professional to understand their business models, margins, net worth, business mix, etc. You could use this platform to convince the banks about the robustness of your business. While assessing the repayment capacity of the loan-seekers, banks take into consideration the actual cash profits made by the business. Therefore, the clarity of thoughts you display during the personal discussion to convince the bank about your credentials and the business' prospects could go a long way in getting the loan approved. Furthermore, the line of business chosen by you, too, could be an influencing factor.
OTHER FACTORS
In addition, any properties you own, your track record with the banks and business-related repayment record will also be taken into account. If your repayment history is impeccable, it will brighten your chances of securing the loan. Also, if you are highly qualified and, hence, easily employable, you could find it easier to get the loan, as it indicates that in the event of the business running in losses, you can maintain continuity in earnings and, hence, repayment.
