Home Loan
Buying a home could be one of the biggest achievements of a person's life. In most cases, it takes an entire lifespan to fulfil the dream of purchasing one's own home. Selecting the ideal property involves a lot of research and planning. Arranging funds is probably the toughest and the trickiest part of the process.
You could dip into your savings for the entire payment or decide to get a Home Loan at a good interest rate.
A decade or so earlier, borrowing from a bank used to be a cumbersome process but today financial institutions have simplified the entire Home Loan application and disbursement process. All leading financial institutions offer Home Loans with attractive interest rates, flexible repayment periods, quick turnaround times and unique product features.
Loan Against Property
A Loan against Property can be availed for a variety of purposes ranging from home renovation to purchase of machinery as well as to meet the shortfall of working capital. It is a safe proposition for the banks because they have collateral of the property as support for the finance they provide.
Salaried people opt for mortgage loans to cater to expenses like the educational needs of their children, medical expenses, home renovation, and so on. Business enterprises prefer the Loan against Property as collateral towards Business Loans and for procuring working capital requirements.
A Loan against Property is easy to procure because it is secured in nature. Banks usually maintain a margin while sanctioning a Loan against Property. This margin usually ranges from 50-90% of the value of the property (also known as LTV or Loan-to-Value). This facility is also popular because the borrower can utilize the property in spite of mortgaging it in favour of the bank.
Personal Loan
What can you use a personal loan for? Signature loans can be used for just about any purpose, from consolidating debt to funding investments or financing big-ticket purchases. Borrowers should compare personal loans to other types of financing — for example, if buying a car, secured auto financing is probably cheaper, and if funding an education, government-backed student loans might make more sense. However, unsecured loan interest rates are likely to be lower than those of credit cards, and personal loans can make budgeting easier with their fixed rates and unchanging payment schedule.
Availing a Personal Loan as an additional back-up is something you could consider if you find yourself in a tough spot. Some people take Personal Loans to consolidate their credit card debt. You too can do this and pay off your existing credit card outstanding amount.
Business Loan
Finance received from banks or other financial institutions for the purpose of investment in a business by way of working capital and term loan is a Business Loan. The term loan is provided for capital investment like the purchase of plant and machinery, repairs of the existing plant and machinery, to build infrastructure, to expand the existing business, and any other requirement to take the business to the next level. The working capital finance is to meet the operational expenses like the purchase of inventory, hiring of staff, payment of utility bills, and so on.
The various types of Business Loans are as follows:
Working Capital Finance:
Any businessman who is in the service/manufacturing business or retail/wholesale trading, imports/exports can make use of this facility. This facility is generally opted for when there is a liquidity crunch in the business due to irregular cash flow and funds are required for meeting the day-to-day operational expenses of the business or when there is a sudden increase in the volume of the business. Working Capital finance can be by way of a line of credit, overdraft, packing credit, post-shipment credit or even by way of non-fund based limits like Bank Guarantees and Letter of Credit.
This facility will be a revolving credit and can be used as and when required. The utilised amount can be replenished by depositing amount when the cash flow of the business improves. The biggest advantage in this type of finance is that interest is levied only to the extent of the amount utilised and for the period utilised.
Rate of interest is mainly based on the credit appraisal of the business. The working capital finance will be for a period of 6 to 12 months and will be renewed after an annual review. The prime security for working capital finance will be the stocks and receivables of the firm/Company. Collateral security may also be insisted by way of a mortgage of residential/commercial property. It depends on the lender and the quantum of finance.
Term Loans:
These loans are given mainly for capital investment, which will be of long-term in nature. It could be for building the factory premises, improving the infrastructure, modernisation of the existing structure, etc. The quantum of loan involved in this facility will be high and will be disbursed in a lump-sum. The repayment period also will be longer and can range between 7 years to 20 years. The rate of interest will be based on the profile of the Company, Credit Rating, the quantum and period of the loan. The prime security will be the assets created out of the finance and collateral security will be a mortgage of residential/commercial property. To apply for this type of finance, you should have a detailed project ready along with a business charter as to how the loan amount will be utilised.
Invoice Financing:
This is a very lucrative way of arranging finance for a firm/company. The time gap between raising an invoice and the final payment can be anywhere between 60 to 90 days. During this time, the firm/company may face a liquidity crunch and might need funds for the day to day operations of the business. Banks/financial institutions do provide finance against such invoices for customers who have a long-standing relationship and have been availing credit facilities which have been conducted satisfactorily. Up to 80% of the value of the invoice will be provided as working capital funds and the remaining 20% will be provided when the final payment is received. Invoice financing will attract processing charges and interest as per the guidelines of the lender.
Equipment Financing:
Equipment financing is popular in the manufacturing sector. Any manufacturing business will require some mandatory equipment for manufacturing the product. Such equipment will be financed by banks/financial institutions. Funding will be done for office equipment, healthcare equipment, medical equipment, construction equipment, etc. The quantum of finance can be more than 100 Crores in some cases. The funding will be project-based. The rate of interest will be very competitive as the quantum involved will generally be high. The repayment period will be anywhere between 3 years to 7 years. Security of the assets created out of the finance will be taken and collateral of residential/commercial property will be insisted on a case to case basis.
PMMY:
PMMY, i.e., Pradhan Mantri Mudra Yojana, has been introduced to encourage entrepreneurship under the MSME Sector and to create employment for the youth of the country. A loan is provided both for service and manufacturing units. The quantum of loan will be between 50,000 to 10 Lakhs based upon the line of activity.
Stand-up India:
Stand-up-India was introduced to encourage setting up of new ventures by candidates who belong to Scheduled Cast/Scheduled Tribe and to encourage women entrepreneurs. Entrepreneurs belonging to Scheduled Caste/Scheduled Tribe or the women entrepreneurs should have the major shareholding in the firm/Company to be eligible for funding under the scheme.
OD Limit over draft
Overdraft means the act of overdrawing money from the bank account. Bank Overdraft is a facility provided by the bank to its customers withdraw money more than the amount he holds in his account.
The overdraft limit sanctioned is predefined by the bank depending upon the securities pledged or repayment capacity of the Account holder. The drawing limit is specified by the bank, or financial institution may vary from bank to bank and borrower to borrower. Interest is charged on the amount utilised not on the limit sanctioned. The amount withdrawn above the specified limit will be subject to additional charges.
CC Limit Cash Credit
Cash Credit is a type of short-term loan facility in which the withdrawal of money by the company is not restricted to the amount the borrower holds in his cash credit account but up to a predefined limit.
The cash credit account functions like a current account with cheque book facility. The facility is provided to pledge or hypothecation of stock i.e. raw materials, work in progress, finished goods, etc. or on the guarantee of book debts (debtors) or other collateral security as per banking company norms. The purpose of taking cash credit is to fulfil working capital requirement of the firm. The cash credit limit is supposed to be equal to the working capital requirement of the company less the margin funded by the company itself.
The drawing limit is specified by the bank or financial institution as well as it can vary from bank to bank and borrower to borrower. The bank charges interest on the amount utilised not on the limit sanctioned. The bank has the right to demand money lent at any time.
