BankKeeping

  Definition : Unsecured loans are funds borrowed from banks, NBFCs, or other entities without requiring collateral. They typically involve a personal guarantee from the borrower. Loan Size : These loans are generally smaller, ranging from a few lakhs to Rs. 2 crore, though larger amounts might require additional security based on business size and borrower history. Interest Rates : Interest rates are higher than secured loans to mitigate risk: Banks: Approximately 14-15%. NBFCs: Slightly higher, around 15-17%. Inter Corporate Deposits (ICDs): Range between 12% and 20%. Rates from personal contacts are variable and negotiated based on mutual comfort. Processing Fees : Usually around 1% of the loan amount, subject to negotiation based on borrower profile and loan size. Repayment Terms : Typically demand loans, to be repaid upon lender's request. Loan periods generally span less than a year, with extensions up to 1-3 years based on agreem...

  We often hear unsettling stories of business owners suddenly discovering from their bankers that their personal or business credit score (CIBIL score) is alarmingly low, with numerous overdue amounts they were unaware of. Consequently, not only does their application for a new loan become jeopardized, but existing loans also come under scrutiny from lenders, leading to tough times until these issues are resolved. Doesn’t this sound familiar - perhaps a personal experience or that of a close friend or relative? It’s crucial to understand that when borrowing money for business or personal purposes (such as using a credit card), timely payment of all bills by the due date is essential to maintain a good credit score. Being even slightly lax or paying bills after the due date severely impacts your credit score, triggering a cascade effect on all borrowings and prompting lenders to pose numerous questions and follow-ups, making life difficult. Credit Bureaus and Scores In In...

When reviewing a bank's sanction letter, SME entrepreneurs and business owners in India often focus solely on the sanctioned loan amount and the applicable interest rate, neglecting other crucial details. However, it's vital to thoroughly understand the entire document before signing it. Here are essential aspects to consider beyond the loan amount and interest rate: Credit Limit Structure : Check for any sub-limits or usage restrictions within the sanctioned amount. Pricing : Determine if the interest rate is fixed or floating, the benchmark or reference rate used, and the interest rate reset mechanism. Commitment Fee : Understand if there are penalties for underutilization of the sanctioned amount. Security : Identify types of security (primary and secondary) and the priority (first charge, second charge, etc.). Guarantees : Review requirements for personal guarantees, corporate guarantees, and options for reduc...

  Reducing collateral on a business loan typically involves demonstrating lower risk to the lender or finding alternative ways to secure the loan. Here are some strategies: Improve Creditworthiness : Strengthen your business and personal credit scores by paying bills on time, reducing debt, and correcting any errors on credit reports. A higher credit score can reduce the need for collateral. Increase Down Payment : If you can afford it, offering a larger down payment upfront can reduce the lender's risk, potentially allowing you to secure the loan with less collateral. Show Strong Cash Flow : Demonstrating consistent and healthy cash flow through financial statements and tax returns can reassure lenders about your ability to repay the loan, potentially reducing the collateral requirement. Offer Alternative Collateral : If you have other assets or accounts receivable that can serve as collateral, discuss these options with ...