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Are you aware about the GST business loans? Do you know filing regular GST returns can help you avail a business loan?  Do you know what GST business loan mean? In simple terms, it is a type of business loan for meeting working capital needs. This article throws more light on GST business loans, eligibility criteria, required documents and so on.

Also read: Types of GST returns in India

What is a GST business loan?

There are different types of business loans offered by banks/NBFCs today to enable businesses meet their financial needs.

GST business loan is a type of working capital loan, but it is approved on the basis of GST returns’ track record. As a result, the loan processing does not require any other financial document other than GST returns. It is suitable for funding business’ working capital needs. Depending on the lender i.e., bank or NBFC, business owners can avail loans of up to ₹1 crore.

Note: Loan amount differs from lender to lender, and it is recommended to approach the bank or NBFC find out respective limit of loan amount.

Key features of GST business loan

Here are some of the key features of GST business loan.

  • Collateral free loan: GST business loan does not require the borrower to promise any collateral. The loan is approved on the basis of GST returns track record.
  • Credit score is not important: As the loan is approved on the basis of GST returns, credit score has no importance.
  • Document requirements: Apart from KYC documents such Aadhaar card, PAN card, address proof, etc., the only financial document that is required for GST business loan approval is GST returns.
  • Loan amount: The loan amount limit varies from a bank to bank. Generally, the borrower can avail up loan of up to ₹1 crore.
  • Interest rate: GST business loan is usually offered at an attractive rate of interest. Currently many banks are offering GST business loan at the rate of around 8%. (Note: The rates of interest undergo frequent changes. Therefore, it is best to get in touch with the bank to know the interest rate.)
  • Paperwork: There is minimal documentation involved. As a result, it brings ease of paperwork.
  • Time for disbursal: As the paperwork is minimal, processing happens quickly and hence loan is disbursed sooner if compared to other business loans.

Advantages and disadvantages of GST business loan

Whether you are taking the loan from a bank or NBFC , there are pros and cons of a GST business loan. As such, it is recommended to understand its merits and demits to evaluate if it’s the right loan type for you or if you should consider availing other business loans or working capital loans.

Here are advantages and disadvantaged of obtaining GST business loan.

Advantages Disadvantages
Quick approval and disbursal Requirement of having good GST filing track record
Minimal paperwork Short term loan
No consideration of credit score Limited funds can be obtained
Lower interest rate

GST business loan vs working capital loan

GST business loan is a type of working capital loan. As a result, there are some similarities between the two.

However, due to involvement of lesser documents, there are some differences as well. Some of the similarities and differences between GST business loan and working capital loan are mentioned below:

GST business loan Working capital loan
Purpose It is to be used for funding working capital needs. As the name suggests working capital loan is meant for fulfilling the needs of working capital.
Required documents Apart from KYC documents, only filed GST returns documents are required. Apart from KYC documents, borrower needs to submit a list of documents such as bank statements, tax documents, audit reports, etc.
Paperwork Less amount of paperwork is involved as compared to working capital loan. Paperwork is more as compared to GST business loan.
Credit score Credit score is not considered. Credit score holds importance.
Collateral Collateral is not involved. Usually, collateral is not involved.

As a borrower, when debating between working capital loans and business loans, it is recommended to first check with your lender. Not all lenders offer the same loan categories in which case you may have to find a lender who does or consider opting for a different loan type.

Business Loan

Eligibility of GST business loan

All MSMEs meeting following criteria are eligible for GST business loan.

  • The business should have Udyam registration certificate as it is one of necessary documents for obtaining loan.
  • The business should have filed GST returns for at least last 3 months as the documents are required to be submitted for loan approval.

Documents required for GST business loan

As mentioned above, GST business loan requires minimum documentation. Here is a list of documents that may be asked while availing GST business loan.

  • Aadhaar card
  • PAN card
  • GST returns for minimum last 3 months
  • Proof of business such as MSME registration certificate

Note: Requirement of documents may change depending on the lender. It is best to obtain exhaustive list of required documents from your lender.

How to seek GST business loan?

You can visit a bank or NBFC nearby to understand terms and conditions, interest rate and documents requirements needed for GST business loan.

As an alternative to GST business loans, consider availing collateral-free loans through Tata nexarc. The process of seeking the loan is completely online and hassle-free, minimum documentation is required, interest rates are low, and you can get a loan offer within 5 minutes!

Closing remarks

By regularly filing GST returns, one does not only stay GST compliant but also can avail loan for  business needs. It underlines the importance of having a good track record. Therefore, pay attention on filing timely GST returns and be GST compliant.

Swati Deshpande

Swati is a passionate content writer with more than 10 years of experience crafting content for the business and manufacturing sectors, and helping MSMEs (Micro, Small and Medium Enterprises) navigate complexities in steel procurement, and business services. Her clear and informative writing empowers MSMEs to make informed decisions and thrive in the competitive landscape.