5 Important Things to Remember Before Getting a Shop Loan
Many finance services are also serving the purpose of lending the loan. You must know what the requirements are if you want to own a shop. You can avail of a shop loan if you have property or apply for MSME loan. It also depends on your capability to repay the loan. There are five things to understand if you wish to have a shop loan.
How much is the desired amount for a loan?
You first need to decide the type of shop you want to set up. The groundwork is done on the required amount, plus 25% will be ideal for applying. It would help if you considered all types of expenses in this groundwork, including labour charges, the shop's maintenance cost, cost of raw or final products, etc. The amount of loan against property will be approximately 40-80% of the property's current market value. If this fits your budget, you can apply for a business loan.
The interest rate you will be charged
You must know what percentage you will have to pay the interest on the shop loan. You can incorporate this amount in your monthly expenses to work out whether it is affordable or not. The interest rate varies on the loan amount, income, tenure, credit history, etc.
Open and hidden charges during the process
Lenders have different terms of hidden costs such as service charges, prepayment charges, etc. Most of the loan earners make the mistake of not taking this into account. Such orders may look small but can bring unprecedented changes in the cost of borrowing the loan and may affect the ability to repay the loan.
The repayment tenure
You must know how many years you have to repay the loan amount because it is directly connected with the rate of interest. Most banks or lenders offer you a flexible term of up to 15 years. Initially, you may feel longer-term is affordable because it allows you to pay a smaller amount but keep in mind that longer tenure increases borrowing costs. This is because the interest rate is calculated as compound interest, and so it will be more in long term tenure.
Pros and cons
You should also try to explore the positives and negatives of borrowing an MSME loan apply. Usually, loans like education or home loan will give you a tax benefit, but loans against the property will not have a tax benefit to you. You will need to pay tax on the amount of the repayment. In case of a business loan, you need to have last year's ITR of over 1.5 lakh or a minimum turnover of 10 lakh in the previous 12 months (if you already have a shop). You must own a property or business premises, and business premises must not be your residence.
Whenever you wish to take a shop loan, you must be aware of what you will start after you own a shop. A business model must be ready before even applying for a business loan. (Some lenders might ask this) You can make the shop running with benefit in some time only, if you have excellent research done well in advance, on the terms and conditions.
How much loan can I get on the property?
As per the current criteria, you can get 40-80% of your property cost per the current market value.
How is the interest rate on a business loan calculated?
The interest rate entirely depends on the type of business loan, the loan amount you have applied for, and your ties with the bank. The current status of interest starts at 13.5%.
What is the tax benefit on loan against property?
You can claim a tax exemption if the loan is used for business. In such cases, benefits can be claimed against interest paid and the associated fees incurred.
Can I take two business loans?
Yes, as long as it fulfils the SBA's lending guidelines, you can take more than one SBA loan. However, two loans of the same kind within 90 days will be taken as a single loan.