Investing in commercial property is one of the most rewarding decisions a business owner can make. Whether someone already has an established business or is starting from scratch, owning a commercial property has its sets of advantages.
Especially for people having mobile store, pharmacy, boutique, cafeteria or even retail food store, it is essential to have self-ownership of the shops. It gives the owners a chance to build equity and also gain tax advantages. However, purchasing a shop requires a substantial amount of money which small businesses often cannot afford. This is when they choose a loan for shop purchase.
A shop loan is an unsecured financial product coming with a plethora of benefits mainly for the small businesses. NBFCs business loans for purchasing shops at competitive interest rates. They also bring in a pre-approved offer on business loan, personal loan, home loan and a host of other financial services and products.
This quick and simple process aids in saving a borrower’s time considerably. You can also check out your pre-approved offer once you give a few essential details on their online portal.
However, an applicant needs to consider the following aspects to get a loan for shop purchase:
Improve your financial health:
Before applying for the loan, an applicant needs to assess his/her creditworthiness. Financial institutions evaluate an individual’s creditworthiness by checking the CIBIL score and credit history. A poor rating reflects a borrower’s credit risk whereas good credit history proves his financial stability. So, one should ensure to have a CIBIL score of at least 750 to qualify for the loan.
Moreover, sound CIBIL report aids a borrower in negotiating the interest rate as well.
Have a reputable business vintage
As loan for shop purchase comes without any tangible security, business vintage speaks for the borrower’s repayment credibility. Lenders gather precise details about the company, its turnover and liabilities.
Ideally, lenders prefer a business vintage of at least 3 years with no severe breaches in the credit history.
Fulfil the eligibility criteria
As a borrower, one needs to meet specific eligibility criteria to avail the loan amount. Here are the following easy-to-qualify norms:
- A business owner needs be between 25 to 55 years of age.
- He/she also must have Income Tax returns filed for at least the past one year.
However, a borrower may have to furnish other relevant documents at the time of verification.
Arrange all the documents prior hand
The documents one needs to furnish are:
- KYC documents
- Business proof
- Relevant financial documents
- Savings account statements of last month
Though there is minimum paperwork, an applicant needs to arrange these prior to applying for the business loan. This will eradicate further hassles and ensure quick credit disbursal.
Manage the debt-to-income ratio
Lenders also assess a borrower’s debt-to-income ratio for comparing his monthly debts with his net income. The ratio between a person’s income and debts must not be too high. So, if borrowers have high DTI ratios, it can deter lending institutions from approving the loan.
Therefore, make sure to keep the debt-to-income ratio low and take all possible steps to eliminate debts before availing the unsecured business loans.
Point to note: A good DTI ratio is generally below 36%
Considering the peak demand for commercial property, renting a shop can cost a lot every month. For instance, one needs to spend around Rs. 18,000 on rent for a commercial shop (up to 100 sq. ft.) in Bengaluru. That sums up to Rs. 2,16,000 per year. On the other hand, buying the same space can be summed within Rs. 10 Lakh.
While the latter is always profitable, availing a loan for shop purchase can make it even easier and economical.
So, take time, do your research, and consider the points mentioned above to fetch this collateral-free shop loan to expand your business.