Which License is Required to Start a Loan Company?

A Loan Company is a type of Non-Banking Financial Company that is registered under the Companies Act 2013 and is primarily engaged in providing individuals and businesses with different types of loans, such as gold loan, car loan, education loan and insta loan. 

To start a loan corporation in India, it is mandatory to seek approval from the Reserve Bank of India (RBI). This approval is granted by the RBI in the form of a loan company license.

What is a Loan Company?

A loan company is a business that helps people or businesses borrow money, with the agreement that they’ll pay it back over time, usually with interest. It basically acts as a financial intermediary by connecting borrowers with capital they require. Some popular loan corporations in India are Bajaj Finserv, Muthoot Finance, Tata Capital and L&T Finance.

Why Start a Loan Company?

There’s a high demand for lending services these days. For many, getting a loan isn’t a luxury. It’s a necessity. Some people need it just to make ends meet. Other people turn to loans for big events or unexpected emergencies like medical bills. 

Businesses also rely on loans to expand, open new branches or break into new industries. By starting a loan business, you can help meet these needs while earning through the interest people and businesses pay back.

License Required to Start a Loan Company

To start a loan corporation in India, you need to secure a loan-company license, a.k.a Non-Banking Finance Company License, from the Reserve Bank of India (RBI). To get this license, you must first register your company with the Registrar of Companies (ROC) by filing a company registration application via the MCA portal. After your company is registered, you can file an application for a loan-company license with the RBI. 

Eligibility for Loan Business License

The eligibility for securing loan business license is as follows:

• To secure a loan business license, the applicant must be a business entity. Individuals cannot apply for this license.

• The business owner, however, must be over 18 years of age.

• The applicant entity must meet the minimum net owned funds requirement.

• The applicant must have access to RBI's COSMOS portal.

• Any other eligibility requirement set forth by RBI must be met by the applicant entity.

Documents Required for Loan Business License

To secure the RBI license to start a loan business, you must be in possession of the following documents:

• Certificate of Incorporation

• Certificate of Commencement of Business

• Memorandum of Association

• Articles of Association

• CIBIL Data of Directors of the company

• Certified copy of Board Resolution

• Copy of Company’s PAN 

• Statutory Auditors Certificate certifying Net Owned Fund (NOF)

• Copy of CIN allotted to the company

• Audited Balance Sheet of last 3 years

• Business Plan of the Company for the next 3 years

Process to Secure Loan Company License

The procedure to secure a loan business license takes place in the following manner:

Step 1: Company Incorporation

Before you begin the process of securing a loan company license, you need to register your company with the Registrar of Companies, in accordance with Companies Act 2013. This is because individuals cannot apply for the loan license. Only business entities can. 

To register your entity with ROC, you must visit the MCA portal and file Spice+ form there. Once your company is registered, ROC will grant your business a certificate of incorporation.

Step 2: Preparing Documents

Now, you must prepare all the necessary documents earlier-mentioned in this blog post. Make sure your documentation is in a proper order and certified by a chartered accountant or other authorized professionals as required. After this, you can proceed further to the next step.

Step 3: Filing of Application

Now, you must fill out the loan license application form. For this, you must visit the COSMOS portal of RBI. Make sure you enter all the required details accurately. Once you fill out the application form, you can file it by paying the prescribed application fee. 

Step 4: Approval by RBI

Once RBI receives your application, it’ll carefully review it and verify the authenticity of submitted documents. If your application gets approved, RBI will grant your business a loan-company license. After obtaining this license, you can start providing loan services to your customers.

Conclusion

To start a loan business in India, you must secure authorization from the Reserve Bank of India. This authorization is received in the form of a loan business license officially known as NBFC license. Want to obtain this license? Connect with Registrationwala for assistance. 

Frequently Asked Questions (FAQs)

Q1. Which portal do I need to visit to apply for a loan-business license?

A. To apply for a loan-business license, you need to visit the COSMOS portal of RBI.

Q2. Which government body grants a license to businesses wanting to provide loan services?

A. The Reserve Bank of India grants a license to businesses wanting to provide loan services.

Q3. Can individuals apply for a loan-business license?

A. No, only business entities can apply for this license.

Q4. Is a loan corporation considered an NBFC?

A. Yes, a loan corporation is considered to be an NBFC.

Author: Manish Kumar

I’m Manish Kumar, a content management specialist. I simplify complex financial and regulatory topics into clear, insightful content. As a regular contributor to the Registrationwala portal, I provide updates on finance, Tax, government schemes, compliance, and other incorporation information. My goal is to keep you informed about key industry developments and their impact.