How can you obtain GST Business Loan in India?

Ashish M. Shaji

07 Jun, 2021

The Goods and Services Tax was introduced in 2017 and was one of the notable changes that took place in India. The government recently allowed companies to leverage their GST returns to take out high value GST business loan. Such loans enable quick business financing, thus leading to better cash flow and corporate financial flexibility. In this article, we shall take a look at how these loans work, and how you can obtain them.

Meaning of GST Business Loan

It is a loan that works as a collateral free loan which means the borrower doesn’t have to mortgage any property as collateral. The financial institutions look and analyse the borrowing capacity of the applicant by assessing their GST returns. Based on their previous tax returns, the financial institutions may approve a GST loan.

A GST business loan doesn’t need any additional financial documents thus, it is easy and quick to avail of such loans. Different banks and financial institutions have capped the maximum amounts they provide through such loans. 

Who can get the GST Business Loan?

There are private, and public sector banks that provide such loans to the applicants therefore choosing the best business loan may not be easy. Additionally, many banks have different thresholds for the maximum credit that they can provide through loans. The government has set maximum limit of the business loan at 1 crore rupees.

Business sectors, from manufacturing to distribution, are expected to enjoy benefits of this new set-up. The following business entities can get this loan in India:

• Public limited companies;
• Private limited companies;
• Partnership firms;
• Sole proprietorship.

Moreover, manufacturers, retailers, wholesalers, service providers, and traders who import or export products from India can apply for this form of loan. In a majority of the cases, small and medium enterprises shall obtain such loans as they don’t get the funding easily otherwise. Therefore these business entities that fall in the MSME category can get such loans from banks by simply providing their GST returns. 

59 minute Government Portal

The government initiated a 59-minute website that MSMEs can use to get a GST business loan ranging between 10 lakh rupees to 1 crore rupees. The whole process will get completed within an hour, thus providing business with the access to quick and effortless funding. The approval process of the GST loan has been updated, and now it’s contactless and fully automated.

The interest rate for such loan starts from 8%, and as mentioned earlier, no collateral is needed. The extension of such loans is connected to the Credit Guarantee Fund Trust for MSE Scheme, called the CGTMSE Scheme^[1]. After the approval is given, the fund is disbursed in a week’s time.

The 59-minute web portal makes use of advanced algorithms to prevent occurrences of frauds and such other issues and also verifies all details provided by the applicants. This portal also connects with different banks, thus helps to avoid physical meetups and visits, especially in times such as these.

These loans are extended mainly by the small industries development bank of India and other public sector banks such as:

• SBI;
• PNB;
• Bank of Baroda;
• Indian Overseas Bank;
• Vijaya Bank.

How to obtain a GST Business Loan?

The following procedure can be followed to obtain this loan:

• Firstly, MSMEs should register on the government portal by submitting their mobile number, email ID and their full name;
• After that, the applicants should log in to the portal and provide their GST details and tax information;
• Then the applicants would be required to upload their tax returns and other essential financial documents in XML format. They can also log in using their PAN and incorporation date;
• The applicants should either upload or log in with their banking credential to give the officials access to their bank statements;
• Then they should provide details about the directors, partners etc of the company. They should also submit details about their business and the reason for obtaining loan and past history of loans obtained.
• Finally, the applicant should choose the appropriate lender, pay the processing fees and download a copy of the approval letter when the processing is finished. The eligibility criteria for applying for these loans is that the business should be minimum 1 year old and should have a monthly sales of minimum 2 lakh rupees.

Documents required

The following documents are required for obtaining such loans:

• PAN Card;
• Residence proof;
• Bank account statement of the last 6 months;
• GST registration certificate/company incorporation certificate.

Applicants who apply for loans of an amount more than 20 lakh rupees should submit-

• Audited financial statements from last 2 years;
• Income tax returns;
• GST returns of the previous 6 months.

Conclusion

With GST Business loan, MSMEs can expand their business and can also use the same to meet other business expenditures. When a person plans to kick start their business, they may face challenges like arranging the funds, thus, loans such as these can be handy in those times.

Read our article: What is the Effect of GST on Different types of Loans?