Business loan documents for a proprietorship: the full checklist

Business loan documents for a proprietorship, in short

A proprietorship is a business owned and run by one person, with no separate legal identity. So business loan documents for a proprietorship centre on the owner. The lender is, in effect, lending to you. Your PAN is the business's PAN. Your personal CIBIL record is the business's credit record. CIBIL is TransUnion CIBIL, a credit bureau that holds repayment records.

Banks do lend to proprietors as a matter of course. Kotak Mahindra Bank, for example, lists sole proprietors first among the business forms it lends to (Kotak Mahindra Bank).

The proprietorship checklist

The periods are one bank's published guidance (Bank of Baroda); your lender may ask for different ones.

The two proofs of business: what counts

Under the RBI's KYC rules, a lender must collect any two documents, in the name of the proprietary firm, from this list (RBI Master Direction, KYC):

If you cannot give two, the lender may accept just one at its discretion, after visiting or verifying your place of business (RBI Master Direction, KYC). The simplest pair for most proprietors is the GST certificate and the Udyam certificate. Kotak, for example, lists the GST registration certificate as the constitution document for a sole proprietorship (Kotak Mahindra Bank).

Is GST registration compulsory for a proprietorship loan?

Not always. GST registration is compulsory only above a turnover threshold: ₹40,00,000 for suppliers of goods and ₹20,00,000 for suppliers of services in most states, with lower limits in some states (CBIC GST update). Some kinds of supply need registration at any turnover, so check with your CA. If you are below the threshold, use two other proofs from the list above, and expect the lender to lean on your bank statements.

That said, GST returns are among the cleanest proofs of sales a lender can read. If you are registered, keep every return filed on time.

Is Udyam registration compulsory?

No law makes it compulsory for a loan. But it is free (Udyam Registration portal), a proprietor registers with their own Aadhaar (Udyam gazette notification), and it counts as one of your two proofs of business. It also lets a bank treat you as a micro or small enterprise. There is little reason not to have it. See Udyam registration.

An example: a kirana owner's file

Take a grocery shop run by its owner as a proprietorship, turning over less than the GST threshold for goods, so not registered for GST. (Illustrative example.) The owner's two proofs of business could be the shop licence under the Shop and Establishment Act and a Udyam certificate, both in the shop's name. The owner adds PAN and Aadhaar, the last year of statements for the shop's current account, the last two income tax returns showing business income, and a simple profit and loss account prepared by a CA.

Without GST returns, the bank statement carries most of the weight. Daily deposits of shop takings, regular payments to wholesalers and a balance that never runs to zero tell the lender far more than any certificate.

Mistakes proprietors make

• Mixing personal and business money in one savings account. Lenders cannot tell sales from household spending. Use a current account in the firm's name.
• A trading name that differs between the GST certificate, the shop licence and the bank account.
• Filing ITR as salary or other income while claiming business income to the lender.
• Forgetting personal loans. A car loan or credit card in your name is a business obligation to the lender, because you and the business are one.

Check your file before a lender does

The free loan readiness check reads your file the way lenders read it and gives you a Capnix score with what to fix first.