One of the latent benefits businesses derive from GST Registration is access to credit. While possessing a GST Registration Certificate directly adds credibility to a business, opening up channels of formal credit, one may not have imagined that mere compliance with the GST regime would make them eligible to get business loans.
The facility mentioned above is called a GST Business Loan, or a GST-based Loan in financial parlance. Let us understand what GST Business Loans are, the benefits of GST loans, their key features, and the documents required for GST-based Business Loans.
A GST Business loan, or a GST-based Loan is a working capital loan availed by businesses against their GST returns. They are part of the GST Surrogate Program. GST business loans can either be secured or collateral-free.
The tenure of the loan depends upon the type of loan facility provided and the policies of the lenders. In the case of a term loan, GST Business Loans can have a tenure of up to 36 months.
There are various benefits of GST benefits of a GST Business Loan based upon the type of loan facilities provided by the lenders, some of which include:
Also Read: What are the Benefits of business loan
There are several features of a GST Business Loan that make it especially attractive to Micro, Small, and Medium Enterprises (MSMEs) registered under the GST Act:
In addition, Doctors, CAs, Consultants, etc. with a GSTIN and GST returns filed from time to time are also eligible for GST-based loans offered by some lenders.
The eligibility criteria for GST Business Loans vary from lender to lender, however, it is usually determined based on the following scheme:
Also Read: Business Loan eligibility criteria in India
The following documents are required for GST Business Loans:
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Sole Proprietorship firms, Partnership firms, Private Limited Companies, and Public Limited Companies among others indulged in trading, manufacturing, or services sector with a valid registration certificate under the Goods and Services Tax Laws are eligible for a GST Business Loan.
A GST Business Loan is a loan facility provided to businesses against their GST returns to address their working capital requirements. It may be fund-based or non-fund-based. The tenure of a GST-based loan is usually short-term, ranging up to 36 months. While some lenders provide collateral-free GST Business Loans, other lenders offer GST loans against the hypothecation of inventory or account receivables.
While a service tax is applicable on a Business Loan, no GST is paid on the interest payment on the outstanding loan amount of the Business Loan.
Yes, a business can get a loan through their GST number and based upon their GST returns if the business has been in existence for at least one year or any other requirement mentioned by the lender.
The limit of a GST Loan depends upon the type of loan facility provided by the lender and the business profile of the borrower along with their financial records.
While ICICI Bank provides for an Overdraft Facility of up to INR 2 crores against GST returns of a business, Bank of Maharashtra provides a maximum of INR 10 crores as a GST-based loan.
To apply for a GST loan, the borrower may have to submit the following:
Lenders usually offer competitive interest rates on GST-based loans as per their policies, the borrower profile, and the type of facility provided. In some cases, the interest rate on a GST-based loan may be linked to the repo rate, i.e. RLLR linked.
