Question

Provide advice to the following types of borrowers on the appropriate loan for their need (explain characteristics, loan size, eligibility and documentation requirements) :
Start up SME entrepreneur, house buyer, personal loan, farmer to buy a tractor, vehicle financing

Answer 1

●SME ENTERPRISES -

For SME enterpreneur there is an option of SME LOAN . SME loan is offered to the small and medium entrepreneur. There are various banks that works very hard to provide SMEloan because small and medium entrepreneur is very crucial for the economy and the society of the country.SME loan for fulfillment of working capital requirement .It is also used for purchasing of asset .

Classification of SME segment for the loan size

(1) Micro enterprises - if it us manufacturing enterprises then it will have to upto 25 lac in plant and machinery and if it is service sector then it have to invest 10 lac in equipment .

(2) Medium enterprises - if it is manufacturing enterprises then it will have to invest from 25 lac to 500lac in machinery and plant ,and if it service enterprises then it will have to invest above 10lac in equipments .

(3)Medium enterprises- if it is manufacturing enterprises then it will have to invest from 500lac to 1000lac in machinery and plant ,and if it is service enterprises then it will have to invest from 200lac to 500lac in equipments.

SME loan is provided for new business as well. Many start up fails because they don't get proper finance for working capital requirements .

Eligibility for the SME finance -

The following enterprises are eligible for SME laon-

(1)sole properitor firms

(2)partnership firms

(3)public and private companies

#DOCUMENTATION FOR SME LOAN-

(1)certified copy of MOA and AOA , certificate of incorporation and certificate of commencement as applicable

(2)Audit financial statement for past 3 years

(3)Shareholder list

(4) list of Directors and partners

●HOUSE BUYER-

If an individual is not having sufficient cash for the house then he she may approach to different banks for the house loan . Various banks provide various loan at different interest rates. Individual can choose bank and the amount of the loan according to the requirement.

Eligibility criteria also differ with the financial institution but the laon seeker should capable of entering into an contract

Documentation required -

(1) dully filled loan application

(2)Identity proof

(3)Residential proof

(4) Income tax proof if required

(5) property proof

●personal loan -

Personal is unsecured loan ie loan raised without collateral security .

Personal loan can be use for anything .

Personal loan cost less than credit cards .

Personal loan can be provided by various insritutions .Individual can take loan from any of institution after fullfillment of eligibility criteria

Eligibility criteria for loan is -

Individual must be salaried employee with minimum salary (minimum salary may differ with institutions)

Documentation for personal loan -

Application form, Age proof, income proof,Id proof ,Residential proof ,Bank statement .

●FARMER - as a low wages farmer approach to the banks,non financial institutions .But banks will best suited as there us no chance of debt trap for farmers .The term of the loan is 1 to 5 years is suitable .The loan size is differ with the good and the eligibility also differ with institutions.

Documentation for the loan -

(1)Application form

(2) Id proof

(3) Residential proof

●vehicle financing-

For the vehicle financing there are option available to the loan seeker ie Hire purchase . A hire purchase is an agreement to hire good for a period of time making regular rental payment and then to buy good at the end of rental period .Legal ownership to the buyer only at the end of the rental period . If the buyer fail to make payment then seller can take back the goods this is the major drawback of hire purchase agreement .

The another option is of taking loan for the vehicle this may be much safer then hire purchase as legal ownership is with the loan taker from start of period . Different banks provide vehicle loan on different interest rates . Loan size duffer with the amount of good . Eligibility is that the loan seeker is sound of mind ie capable of entering into contract

Documentation for vehicle loan-

Application form

Income proof

Bank statement

I'd proof

Residential proof

Signature verification proof