How To Avail A Business Loan For Buying A Shop
Banks have launched several new loan schemes over the years to fulfill the financial needs of their customers. One such loan scheme is shop loan; a financial instrument that allows a person to purchase a commercial property in order to open a shop or business.
Why should you take a shop loan?
There is no one reason why one takes a shop loan. Some may apply to open their first retail store, some may be planning to expand their store, while others can be looking for additional stock, redesigning, or maintenance.
How to apply for loan for purchase of commercial property There are 2 ways to apply for a loan for purchase of commercial property, that is, online and offline. For the online process, simply go to any bank’s website, look for the commercial property purchase section, click apply now, enter the desired details, such as name, address, KYC details, property details, upload your income and financial information and click submit. You can also use an eligibility and EMI calculator to get a fair idea about your eligibility and EMI structure. For the offline process, go to any nearby bank, carry your documents along, as mentioned above, and the bank officials will help you understand the process and repayment structure.
Difference between residential loan and shop loan
The main differences between the residential loan and shop loan are:
• LTV ratio
The LTV ratio, also known as the loan-to-value ratio, describes the relationship between the loan and the value of the property purchased. While the LTV ratio for residential properties is around 75-85%, the ratio for shops is much lower at 55%.
• Interest rate
Shop loans have a higher interest rate than home loans.
• Loan tenure
The maximum loan tenure for shop loans is typically limited to 10 years, whereas loan tenure for residential properties can range between 25 and 30 years.
• Processing fee
The processing fee for shop loans is significantly higher than the processing fee for residential property loans.
Shop loan interest rate and charges
The shop loan can be used for any of the following:
•Purchase of a prefabricated shop
•Shop expansion, renovation, or construction
•Transferring the balance of a shop loan from one bank to another bank
•You have the option of applying for the loan either individually or in co-operation with a partner. This partner can be the property's joint owner or any close family member
• The repayment period is limited to 15 years
The shop loan amount depends on the following conditions:
|Loan Amount||Maximun Funding|
|Rs. 20 lakh or less||90% of the cost of property|
|Rs. 20.01 lakh to Rs. 75 lakhs||80% of the cost of property|
|More than Rs. 75 lakhs||75% of the cost of property|
Shop loan interest rates start as low as 8% and can reach up to 15%.
Shop loan Eligibility Criteria
The eligibility criteria for a shop loan are as follows:
•The applicant must be at least 22 years old and no older than 65 years old
•The applicant needs to be an Indian citizen with valid documentation
•The proposed shop's base turnover should be at least Rs. 150,000. However, this is not a large amount to expect from a business and is easy to achieve
•The company must not be boycotted or rejected by any law or governmental order
•For an already established business, the shop must show profits for at least the previous 1.5 years
•There should be no illegal or prohibited activity within the scope of business
Most of the bank adhere to the listed criteria. For others, please visit their websites.
Documents required for a Shop Loan
A shop loan application requires some basic documents and has a rather simplified process. The list of documents required is:
•Bank statement for last six months
•Proof of address
• PAN card and Aadhaar card for identity verification
• Business documents, like certificate of registration, GST registration certificate and necessary licenses, etc.
Shop loan calculator
Shop loan calculators are fairly simple to use. Look for a shop loan calculator across any bank's website. Enter the loan amount, the tenure, and the interest rate, then click calculate. The calculator will calculate and show you the shop loan EMIs, the total principal and interest break-up, and the final amount to be paid. Note that majority of banks have fixed shop loan interest rates.
A loan for purchase of a commercial property is only recommended if you have enough money to cover the large down payment and a high salary or income that allows you to pay EMIs over a shorter period of time. For businessmen and professionals, investing in a commercial property is an ideal and strategic thing to do, as they can:
•Establish their office in the property
•Lease or rent it out to a company/individual
• Look at it as an investment and sell it at a good appreciation
• Avail tax benefits of upto 30%
At the same time, your goal should be to invest strategically in order to earn income as well as gain capital appreciation.
If you plan to expand your retail business, a shop loan is a great instrument. You can check your eligibility, apply from the comfort of your home and repay the loan in easy instalments.