Retail Credit

Personal loans are getting ‘professional’. Most banks offer specially designed loan products for professionals and the self-employed.
The retail credit scene has undergone dramatic change, with an array of consumer and personal loans offered by banks. Joining the ‘credit’ bandwagon are loan schemes for businessmen and practicing professionals.

Lending to this sector comes under the purview of ‘priority sector lending’ as prescribed by the Reserve Bank of India, most banks offer specialized loans to this segment. So if one is practicing his vocation and is in need of financial assistance, there is another option to choose from.

Persons having a small business enterprise such as an estate agency, restaurant, hair dressing saloon, publishing house, etc. can avail of loans for their working capital requirements.
Loans to professionals and self employed persons such as medical practitioners including dentists, chartered accountants, cost accountants, lawyers or solicitors, engineers, architects, etc. come under this category.

Under this scheme, the professional can get an advance for the purpose of purchasing equipment, repairing or renovating existing equipment and/or acquiring and repairing business premises or for purchasing other tools. Advances granted by banks to professional and self-employed persons for acquiring personal computers for their professional use are also classified under this category.
Most banks lend up to a maximum of Rs 25 lakh under this loan. The total loan eligibility depends on the lending institution, the loan tenure as well as the total income from business or profession.
Apart from that, the loan applicant should fall into the age group of 21-65 years and should be employed in his/her line of business for a minimum period of 2 years.

The asset that is purchased on credit needs to be offered as security to the bank under this loan during the repayment tenure. For instance, if a medical practitioner has purchased certain diagnostic equipment and machinery under a loan, the same needs to be pledged with the bank until the time that loan is fully repaid.

The working of this loan product is similar to a personal loan or any other retail loan where payments can be made in the form of Equated Monthly Installments (EMI). However, some banks also offer an overdraft facility for this loan type.

For loan processing a range of documents are needed to be submitted to the lender. The extent of documentation may vary depending on the relationship with the institution. For instance, if a person is having a salary account with the bank concerned, then he would be offered priority processing and simpler documentation.

The documents required usually include a proof of identity and address, education qualifications certificates and proof of business existence, proof of income, income tax returns of yourself and your business and lastly, post-dated checks for repayment of the loan in equated monthly installments (EMI).
Before signing on the dotted line for the loan, cross-check the following aspects with your lender:

Administrative fees: Consider the charges levied by lender, apart from the interest rate. Effective cost of borrowing could go high if the lender levies high processing and documentation charges.
Interest calculation: Take into consideration the mode of levy of
interest on loan. The interest cost works out to be lower when it is
calculated on a monthly reducing balance basis and lowest, when calculated on a daily reducing method.
Pre-payment charges: Lenders allow prepayment of the loan anytime after 6 months of availing the loan or midway through the loan’s original tenure.

However, find out from the lending bank if there is any prepayment penalty levied if the loan is paid back prior to its tenure.