Monetise your skills with a soft loan

Thinking of opening your own office, but wondering how to fund the expenses? The business loans offered by banks to professionally qualified applicants are an option you can consider.

The loans offer advantages such as low rate of interest, no collateral or reduced requirement, and a repayment holiday. The funds can be used for capital expenses, such as purchase of equipment, furnishing, and buying or renovating the premises. You can also use the money to meet working capital needs.

A wide array of educational backgrounds and professions qualify for these loans. For instance, chartered accountants, company secretaries, architects, lawyers, doctors and dentists can find tailor-made loans on offer for their profession. Some banks cast a wide net, too, with Andhra Bank including information technology (IT) in the list of eligible practices. The rules allow the banks to evaluate whether the skills you possess can be considered ‘professional’ and they meet the minimum criteria for grant of the loans, so check with your bank.

While most schemes are open even to fresh graduates, you may need to meet certain experience criteria in some cases. For instance, Indian Bank limits its IB Professional Special loan to 50 per cent of the eligible amount if the borrower has less than three years of experience.

You need not provide any collateral for the loan with most banks, as it is likely to be covered by the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE).

The trust is operated by the Government of India and offers a guarantee of up to 75-80 per cent of the loan amount to its member lending institutions, though the cover is capped at ₹62.5-65 lakh.

If your bank is not part of the over 2,800 branches of 40 banks which offer this, collateral needs vary based on the purpose and amount of the loan, as well as your credit standing. The assets purchased with the loan are hypothecated and serve as security. Guarantees from a spouse or third party are also accepted.

The loan terms typically offered have tenures of around five years with a repayment holiday of one year. But it could be as high as ten years, with an initial moratorium of two years, in some cases, such as the Corp CA loan from Corporation Bank

The interest is usually a floating rate. However, some banks such as Punjab National Bank charge fixed rates that are based on the amount sought and the purpose. The rate when you seek a loan of ₹2 lakh is 11.25 per cent if used for working capital, while a similar term loan rate is 11.75 per cent.

Even if assets or guarantees are not asked for, providing documents can help you negotiate better loan terms. Past income tax returns, your client roster, or the presence of a co-applicant could motivate the bank to favourably assess your loan repayment capacity.

You can also clinch lower rates if you have a good credit rating. For instance, loans above ₹25 lakh from Oriental Bank of Commerce cost you around 14 per cent (with a base rate of 10.25 per cent) if your credit rating is six or below, but only 12.75 per cent with a rating of one. Women CAs can get a 1 per cent interest concession loans from Bharatiya Mahila Bank.

Nevertheless, if you can pledge your property or gold, you should opt to do that instead of taking a business loan, advises Brijesh Parnami, CEO-Distribution at loan advisory service provider Destimoney Enterprises. This is because the rates are lower and the tenure is much longer for loan against property and, hence, your monthly instalments are reduced.

Also, be sure to select a repayment schedule which is comfortable and does not over-commit your resources, suggests Sukanya Kumar, Founder Director of loan solutions advisory RetailLending.com

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