Who is eligible for GST loan?

Access to capital is the main hurdle businesses, especially small and medium-sized enterprises (SMEs), face in India. Despite the sector’s substantial contribution to the country’s GDP and its potential to generate employment and revenue, they are not able to get adequate capital at the right time. SME’s form the backbone of our economy, contributing significantly to its exponential growth in recent times. Recognizing this important fact, the concept of GST loan was started and has now become an important resource for businesses and entrepreneurs to enhance their working capital and cash flow. These loans help businesses meet their operational needs and GST obligations and offer a lifeline to many businesses. GST loans help small and medium enterprises avoid falling into the vicious cycle of debt by availing themselves of credit from informal sections, which they previously had to resort to when they faced capital crunch. So, who is eligible for these loans? Let us explore the eligibility criteria, and understand how businesses, mainly SMEs, benefit from this financial program.

Understanding GST Loans

A GST loan is a type of unsecured loan specifically designed to assist businesses to meet their GST related obligations, manage cash flow, and finance business growth. Different financial institutions, like private and public sector banks, government institutions and non-banking financial corporations, provide these loans to businesses based on their GST returns and by analyzing their financial statements like profit and loss statement, balance sheets, etc. The loans are offered mainly based on the GST return, as it is considered the primary determinant of the profitability of the enterprise.  They are offered with flexible repayment options and competitive interest rates.

Eligibility Criteria for GST Loans

• Registered GST Filers

The primary condition is that the applicant must be a registered GST taxpayer, with a valid GST registration number and must be compliant with GST filing requirements. This helps the lenders ensure that the business is legitimate, and operates within the regulatory framework.

• Business type and operations

GST loans are available for various types of businesses, including SMEs, microenterprises, and large corporations. Lenders assess the operational stability and financial health of the businesses. To be eligible, the business enterprises must have stable operational history and demonstrate sound financial management. For example, lenders may set a minimum turnover requirement to qualify for the loan, to ensure that the business has stable financial activity. They must maintain accurate records of GST returns and financial statements.

• Creditworthiness

Lenders access the credit history of the borrower to evaluate their credit worthiness, as it is a critical factor in assessing the risk involved. A good credit score and a clean credit history helps in speedy approval of the loan and help the borrower negotiate better credit terms. A good credit history instills confidence in the lender about the borrower’s ability to repay the loan on time.

• Business Location and Industry

GST loans are generally offered to different industries and regions, but some lenders may have specific preferences or criteria based on business location and type of industry or sector. For example, there may be different eligibility criteria for businesses pertaining to certain sectors. Generally, the lenders evaluate financial statements like income and expenditure, balance sheet and cash flow statements to determine the strengths and stability of the business. If the statements show that the finances are good, their loan applications get approved faster.

• Purpose of Loan

The loans are offered for various purposes, like working capital requirements, operational costs, GST regulatory expenses, business expansion, etc. The amount of the loan, rate of interest and loan tenure can be different depending on business turnover, financial stability and creditworthiness of the borrowers.

Documents required for GST Loans

While applying for GST loans, borrowers typically need to submit the following documents:

• GST registration certificate
• GST returns and PAN
• Proof of address (Aadhaar Card, Rent Agreement, Passport, Voter ID, or Driver’s License)
• Proof of business continuity (Business PAN, GST registration, Trade license, or Incorporation Certificate)
• Financial statements like P&L statements and balance sheets
• IT return filed acknowledgement
• loan application form duly filled.

Salient features of GST Loan

• Collateral free loan: Lenders do not ask for collateral in the case of GST loans. They are sanctioned based on the GST returns of the borrowers.
• Minimal documents: Apart from KYC documents like Aadhar, PAN, address proof, etc., the main documents required to apply for the loan are the GST returns.
• Credit score: Though credit history is accessed, and credit score evaluated, they are not the main criteria for sanctioning the loan, as the loan is based mainly on GST returns.
• Loan Amount: The loan sanctioned depends on the type and requirements of the business enterprises, their creditworthiness, repayment capacity, etc., and can vary from one financial institution to another. It can be sanctioned up to Rs. 1 crore.
• Interest rate and repayment period: Interest rates vary depending on the type of loan, the requirement, financial status, repayment capacity of the borrower, etc.
• Less paperwork: There is minimal paperwork as documents to be submitted are fewer. Moreover, the application and sanctioning process is mainly online, so paperwork is less.
• Faster processing: As the process is simple and automated with minimal documentation, processing and disbursal of the loan is faster, which is very helpful for the MSME borrowers.

Application Process

• Research and select a suitable lender

Various financial institutions, including banks and nonbanking financial institutions, offer GST loans. Businesses must research and choose the lender that suits their business needs and offers favorable terms.

• Prepare Documentation

The next step is to gather all the required documents and ensure that they are accurate and up-to-date. When correct documents are submitted, the loan sanction is faster.

• Submit application

The businesses must submit the documents along with the loan application to the concerned lender or financial institution.

• Loan Evaluation

The financial institution, or NBFC, will evaluate the borrower’s application, including their financial statements, credit history, and business operations, and depending on the credit worthiness of the borrower, sanction the loan amount.

• Approval and disbursement

After approval, the loan will be disbursed to the borrower. The lending institution will inform the borrower of approval of the loan. Then the borrower must contact the financial institution, complete the process, and avail themselves of the loan amount.

Benefits of GST Loans

• Collateral not required

Most MSME businesses find it difficult to provide collateral for loans, and they are low on capital. So as GST loans do not require collateral, it is like a savior for them.

• Convenient and easy

As the process is simple with less paper work and collateral not required, it is convenient and easy for businesses to avail of the loan.

• Enhanced cash flow

GST loans provide much-needed working capital and cash flow for businesses, which they can utilize in their GST payments, business operations, improvement, expansion, and growth. When MSMEs grow, the economy of the country also grows.

• Quick processing

Timely provision of funds is crucial for businesses, especially the MSME sector, to stay compliant. As the process of evaluation and sanction is simple and mostly done online by the financial institutions, the loans are sanctioned and disbursed faster, which is a great help to the businesses.

• Avoid penalties and plan taxes

The credit availed from GST loans helps SMEs pay their GST dues on time and avoid penalties. They can also plan and formulate financial strategies to optimize taxes and other financial resources. Thus, they can avoid scrutiny and other legal consequences.

• Innovation and growth

The funds available through the GST loans help businesses embrace advanced technology that helps in innovation, expansion and growth of their business.

Read more:

GST and the MSME Sector

A unique loan portal for MSMEs

To facilitate easy access to micro, small and medium enterprises (MSMEs), Prime Minister Narendra Modi, launched the 59-minute loan portal in November 2018, www.psbloansin59minutes.com. The Prime Minister stated that the aim of the scheme is to ensure that government facilities should reach the doorstep of every MSME entrepreneur and businessmen paying GST. The portal has sanctioned more than INR 86500 crores to approximately 25000 applicants, using artificial intelligence (AI) and machine learning (ML). The online portal helps in the fast processing of loans up to INR 5 crores to MSMEs by analyzing their creditworthiness based on their GST returns and other documents. The AI and machine learning based lending ecosystem is supported by the fintech firm Online PSB Loans Ltd (OPL) based in Ahmedabad and the state-run Small Industries Development Bank of India (SIDBI) led consortium of lenders like SBI, PNB, Bank of Baroda and Canara Bank. The machine makes the decision to lend without any human intervention. Rejection of applications can happen for reasons like incorrect data, non submission of required documents or because the applicants could not be contacted. Sometimes the applicants do not accept the sanctioned amount, as it may be lower than what they had expected. The portal offers personal, home and auto loans.

Also read:

MSME Minister Narayan Rane Launches Rs 20 Lakh Scheme Under CGTMSE for GST-Exempted Micro Units

Conclusion

GST loans provide valuable financial aid to businesses and offer much-needed support, especially to micro, small, and medium businesses to improve working capital and cash flows. They help the enterprises fulfill their GST obligations on time and avoid penalties and legal consequences. Understanding the eligibility criteria and documentation requirements is crucial for businesses to utilize the benefits of this scheme. Ensuring compliance with GST regulations and maintaining good credit history are the main criteria for availing these loans and leveraging them for the improvement and growth of their business. Businesses must do proper research to identify suitable lenders that can help them with the timely provision of loans. With the correct approach, GST loans can be an asset for businesses that help them grow and succeed.

Frequently asked questions

1. Who can avail the GST loans?

Answer: All businesses and individuals registered under GST and having valid GST number are eligible to apply for GST loans. The loans are granted based on their GST returns.

2. Should the borrower give any security for the GST loan?

Answer: GST loans are designed to help small businesses stay competitive and compliant. The loans are offered based on the returns filed by the borrowers. They do not need to submit any collateral or security for the loans.

3. What is the amount of GST loan a borrower can avail?

Answer: The amount of loan sanctioned under the GST loan scheme depends on various factors like the borrower’s requirement, his credit worthiness, repayment capacity, purpose for which the loan is availed and his GST compliance record. By evaluating all relevant factors, the lenders sanction the loan.

4. What are the conditions for a MSME to avail the GST loan?

Answer: The MSME’s must have been operating their business for at least one year before applying for the loan, they must have a valid GST registration, and they must have filed their GST returns on time.

5. What is the purpose of GST loans?

Answer: GST loans can finance many business requirements, like working capital, purchase of raw materials, new equipment and other inventory, business expansion, marketing and other costs.

6. What are the evaluation criteria for a borrower of the GST loan?

Answer: Lenders evaluate the borrower’s creditworthiness, financial stability of the business, repayment capacity, credit history, pending commitments, and mainly their GST compliance records.