Business Loans

Managing finance is an uphill task for any business enterprise. Besides, a sound fiscal system is essential for ensuring the growth of business as also for tapping into investment opportunities. However, businesses usually have to face the challenge of acquiring the desired amounts and more importantly, of repaying their debts. To address such needs, banks offer business loans which are mostly availed of by small and medium-sized enterprises for expansion and modernization purposes. The loans can be both secured and unsecured. While secured loans require collaterals for securing it, unsecured loan does not.

A business enterprise must always determine the amount of loan needed and it would be prudent to assess the business’ current status before applying for a business loan. As lenders are keen to know how the loan would be utilized, a borrower must have planned in advance how the loan is used and repaid.

Secured business loan

: Under this loan type, the entrepreneur has to provide the lender collateral against the loan amount taken. Collateral or security can comprise the company’s assets such as land, manufacturing plant, machinery and even raw material and finished products. If the company can supply the collateral for the loan amount, the interest rates can get relatively lesser while repayment options can also become a lot more flexible. This is due to the fact that the collateral provided serves as guarantee for the repayment of the loan taken.

Unsecured business loan

Under this type of loan, a lender does not require any collateral but offers the loan relying on a borrower’s promise to pay back the amount. As banks take a bigger risk while disbursing such loans, they usually charge high rates of interest. Unsecured loans are also taken for a comparatively shorter duration. Payments are set over a predetermined period and lenders can also levy penalties if a borrower wants to repay the loan earlier than the stipulated period.

Term duration loans

Loans that are usually taken for short periods by an enterprise to address temporary problems such as working capital shortage are called short-term loans. Such loans are usually settled within a year’s duration and may be availed of due to inclement weather that affect business operations periodically. Long-term loans are approved for businesses which are well established and which aspire to enhance their fixed assets for acquisitions and expansion of businesses.

Start-ups can also receive this loan type for purchasing landed assets, construction and long-term working capital. Long-term loans typically have tenures from three to five years. Besides, banks give out intermediate loans which go usually towards new businesses for helping them build inventory, purchasing raw material and equipment or for enhancing working capital. Working capital is funds that is required to meet over-head costs.

Education Loans

As the name suggests, education loans are a great aid for people to meet their education-related expenses. Money for pursuing their studies. Traditionally, education loans are meant for people who are faced with financial constraints. However, with more and more Indian students aspiring to study overseas, the ambit of education loans has gone beyond its traditional nature. Education loans hence are also availed of by many aspirants from well-to-do families. The loans usually cover tuition fees, hostel fees, as also costs of infrastructure like books, computers as well as travel expenses for overseas studies.

Eligibility criteria for securing education loan

The applicant must be an Indian national and must be aged between 16 and 35 years. Once granted, the loan may be repaid by the borrower upon the completion of the education course. The repayment tenure usually spans over a period of five to seven years.

Interest rates on education loans

Interest rates on education loans vary from bank to bank and depend on the loan amount and the course type opted for. At current rates, banks and financial institutes usually charge interests between 8% and 15%, while the processing charges range from 0.5% to 2.5%.

Loan guarantor and documents needed

All education loans require a third party guarantor or security amount depending on the loan amount. The third party guarantor is the co-applicant and can be the student’s parent, spouse, siblings, in-laws or any close relative. For loans exceeding Rs 4 lakh, a borrower may be required to provide a security token in the form of property papers.

An applicant is also required to provide identification documents such as proofs of age and residence. The co-applicant is also required to submit documents such as relationship proof, residence proof and income or salary statement. Students seeking loans for overseas studies are required to submit visa approval papers and travel documents along with their educational documents.

Home loans

Home loans in India are usually disbursed by banks or financial institutions such as the Life Insurance Corporation (LIC). Home loans are offered against the security of a house or landed property. The property could be either a personal one or a commercial one. Whenever a prospective home buyer applies for a home loan with a bank, the latter approves the loan against the property with a conditional ownership over the property. In other words, if the borrower defaults in reimbursing the loan taken, the bank can realize the loan paid out by disposing the property.

How to apply for home loan

There are various steps involved in getting a home loan sanctioned and they include from the selection of the property to filling up the loan application. At the outset, a borrower must compare home loan rates on offer which include charges such as application fees, processing fees and legal charges. The property or home chosen must have all documents updated following which the lender assigns a surveyor to verify the property documents. Banks are specific about whom they offer loans to and they do so only after checking a borrower’s profile and other eligibility criteria such as age and salary.

Loan application

A loan borrower, upon selecting a lender, is required to fill out an application form which requires detailed information about the loan borrower's financial assets and liabilities as well as other personal and professional details along with the property details and its costs. The filled-in application is then to be submitted with other necessary documents required by the lender, which then undergo verification.

Credit check and loan sanction

Banks check out and determine a borrower’s loan repayment capacity before sanctioning the loan amount. To determine a borrower’s repayment capacity, the lender looks at factors such as his income, salary, age, nature of work, business, among others. Lenders in India also check the credit history of a borrower through the Credit Information Bureau (India) Limited (Cibil) Score while deciding on and approving a loan application. If the credit score is low, the bank rejects an application immediately because of credit defaults in the past, while a high credit score means the application can proceed. When the lender is fully satisfied with all the documents, it decides on the loan amount and dispatches an offer letter to a borrower which contains details such as interest rates, loan term and repayment options.

Upon receiving the acceptance letter from a borrower, the lender sanctions the loan but keeps the legal documents of the property as security for the loan disbursed.

NRI Loans

A non-resident Indian or NRI is an Indian citizen who stays abroad for employment or business opportunities outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad.

Eligibility criteria for NRI loan approval

Any Indian who has been living overseas for employment or for pursuing a vocation can apply for an NRI Housing loan. Personnel deputed overseas on short-term or long-term assignments with international agencies or foreign governments are also eligible for this loan. A person must be at least 21 years of age to avail this loan. Besides, he/she should have all the relevant particulars like a valid Indian passport, graduation certificate and an age-proof document. A borrower should also have some asset in India and hold an Non-Residential External (NRE) bank account. These NRE accounts are exempted from tax. A borrower may also be required to appoint a nominee residing in India.

What type of loans can an NRI avail of?
NRI Housing loan

NRIs can apply for housing loans for new constructions or repairs and renovations of existing properties which they intend occupying upon their return to India. As outlined by the Income Tax Department of India, the first criterion for easy availing of a housing loan is that an NRI must have had stayed in India for at least 182 days during the year of assessment. NRIs with valid Indian Passports and a regular income of not less than Rs 10,000 per month are also eligible to apply for an NRI housing loan.

Other loans

NRIs can also avail of vehicle loans and all purpose mortgage loans. The mortgage loans are meant for meeting expenses such as the marriage of a sibling or next-of-kin, medical treatment or for a business start-up. Such loans are provided against mortgage of immovable properties such as land or building but agricultural land cannot be offered as collateral. Loans provided thus cannot be remitted outside India.

Personal Loans

Personal loan is a type of unsecured loan which is not backed by any collateral or assets owned by the borrower. An unsecured loan means the lender simply relies on the borrower's promise to repay the loan taken for personal use. Although such loans charge high rates of interest, they are very useful and can be spent on any purpose, from a party bash, a holiday to buying consumer goods such as TV sets and cars. In India, lenders disburse personal loans in the range of Rs 50,000 to Rs 2,000,000 while the term period for repayment can last from one to five years.

Factors to be considered while applying for personal loans

A comparison of the interest rates that different banks have on offer must be done before applying for a personal loan. Lenders usually set rates based on a borrower’s profile which include his occupation, salary and income, credit history, among others. Personal loans usually carry an annual interest rate ranging between 12% and 25%. A prospective borrower must also check out additional charges such as processing fees, prepayment penalties and documentation fees while applying for this loan, as these fees could add to the overall cost of the loan. A borrower should also take into account the equated monthly installment (EMI) charges before accepting a personal loan, which depends on the loan term. The longer the term period, the lower the EMI but the interest rate will be higher while it’s the opposite for a shorter term period. Loan offers should be compared by keeping the term period constant. It is also very crucial to check the turnaround time of a loan. This is the time lenders take to process a loan application and it varies from bank to bank.

Why personal loan is borrowers' favorite

One of the most sough-after loans, personal loans are favored because of a less cumbersome application procedure. They also find takers who have low credit scores because no collateral is required to avail the loans. A borrower is not required to disclose the purpose of applying for the loan and the only factor that a lender takes into account is whether a borrower would be able to repay the amount lent at the stipulated date.

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