Finance and Accounting Solution

Home Loan

Home Loan is a sum of money borrowed from a financial institution or bank to purchase a house. Home loans consist of an adjustable or fixed interest rate and payment terms. In India, "settling down" has become synonymous with owning a home. Buying a home is also becoming a Herculean task these days owing to the mounting real-estate prices. A home loan is an easy way to fund your house purchase, given that it is not a wise idea to burn your entire savings to buy a land or a home. Banks and other housing finance establishments offer different types of home loans these days. The demand for Home Loan has increased manifold in recent years and people have different expectations when it comes to a home loan. To cater to the requirements of different sections of the society, a lot of banks have come up with the concept of introducing different home loan schemes. To quote a few, several banks offer specially crafted home loans for women, agriculturalists and loans exclusively for purchase of land.
Types of Home Loan:
Lenders offer home loans, not only for buying a house but also for a variety of other purposes. Some of the popular types of home loans available in the financial market are described below.

Most lenders get the property valued independently and provide loans based on their estimated value. It is important to remember, however, that frequently their valuation is significantly lower than the actual cost and hence the requirement of the borrowers goes up. Home loans in Indian Banks are provided up to maximum of 80% (90% for loan amount below INR 20 lakhs) of the value of the house. Home loans are repaid using Equated Monthly Instalments (EMIs) spread over a fixed tenure.
Home Loan eligibility depends upon various factors. e.g. Income, Tenure, Age, Interest Rate offered and the most important CIBIL Score. Banks have their own standards for calculating eligibility. Factors like age, annual income and loan tenures play an important role. Borrowers should explore in order to check which bank is offering higher loan eligibility. Adding up spouse’s income may be a good option to increase eligibility.
Borrower should never finalize a lender purely on the basis of interest rates. Most of us believe the cheapest is the best. But actually, in addition to this, there are other things that should be kept in mind while finalizing home loans.

Loan Against Property

Loan against property (LAP)- is a product offered by Financial Institution (FI) to facilitate loans/ facilities against the security of borrower's own property. The LAP product is designed to meet the financial needs against owned properties (house, Flat etc) to get the best out of their assets. This product can be availed by both Salaried as well as Self-Employed borrower,however that property should not given as security for a loan to any FI i.e. should be free from encumbrance. The rates and loan amounts may differ based on the condition of property and annual income of the borrower. There are factors which FIs consider to mitigate their risks and these factors determine rate of interest on the loan amount, which is up to 80 % of the registered value of the property depending on the FI's internal policy, type of property and valuation. The value of the property is determined by the valuation conducted by the lenders. Flow of is-

Loan Against Security

Loan Against Security (LAS)- is a product offered by Financial Institution (FI) to facilitate loans/ facilities against the Security under the holding of borrower. The beauty of product is to get Liquidity on Locked Investment, without selling them. In case of any need an Individual can avail Loan Against Shares, Mutual Funds, Life insurance policies and Bonds funding upto 50% And 70 % of Market Value up to INR 20 Lac. Even borrower can get Overdraft Facility against Shares and Mutual Funds (both Equity and Debt fund). Loan Against Debt Mutual Funds and FMP Funding up to 85% of Market Value, OD Facility can be availed by Proprietorship Companies, HUF, Partnership Firm, Private Limited Co. Benefits of the product are -

Low interest rate
To Pay Interest Only on utilized amount
No Income Documents Required
No Pre Closure Charges or Penalty
Quick and Easy process with Minimum Documentation

Personal Loan

Personal Loan (PL)- is a product offered by Financial Institution (FI) to facilitate loans for personal use, be it any unforseen expenditure.
A personal loan does not require any security or collateral and can be availed without much fuss. Typically personal loans range from Rs. 50,000 to Rs. 20 Lakh with a tenure typically ranging from one to five years. Getting a Personal loan is quite stress free and there are typically a number of offers in the market most of the time.
Apart from the rate of interest,banks also charge some fees which are usually of two types. First once when the borrower is applying for the loan and then before closing the loan. The fees when charged at the time of processing is called as Processing Fees and that at the time of pre-closure is Prepayment / Foreclosure Fee . Both vary from 2 to 3 % and are negotiable with lender.

Business Loan (Unsecured)

Business Loan (BL)- is a product offered by Financial Institution (FI) to facilitate loans for business purposes.Businesses require an adequate amount of capital to fund startup expenses or pay for expansions. As such, companies take out business loans to gain the financial assistance they need. As with all loans, it involves the creation of a debt, that the company is obligated to repay according to the loan's terms and conditions, with added interest.
Business loan eligibility depends upon various factors and main factor is ability to repay the loan, apart from policies of FIs/Lender. FIs that offer business loans will run extensive checks on borrower's profile, business, profits, financial statements and scope of success to assess repayment capacity of borrower.
Few Bullet points on eligibility of BL.
Age - The age of borrower is criteria to decide business loan eligibility. The most preferable age group is 25 to 65 for all FIs to offer loan to self employed individuals/business owners.
Financial Statements
Outstanding EMIs
Stable and Sustainable Business

Working Capital Fund base & Non - Fund Based

Each business has its uniqueness and style which decides the nature and the form of working capital it requires.
A. Fund Based Limits: - Fund Base Limit is a limit in which the Company gets the money from a bank or Non financial institution in cash.
a.Cash Credit (CC)/ Overdraft (OD) -
To meet working capital requirements of the company the bank gives the CC/OD limit against the hypothecation of Stock and Debtors and their Assets. But while deciding the limit, the bank deducts the Trade Creditors also. Further a monthly/ quarterly stock and debtor’s statement needs to be submitted with the bank showing the position of the stock and ageing of the debtors. Client opens the Cash Credit Account which allows the withdrawal up to the limit sanctioned by the bank. Bank charges the prevailing interest and other bank charges as per norms. This facility is sanctioned for a year and needs to review at the closing of the year for renewal,subject to the requirement of client. Bank normally asks for the collateral security for securing its hands in case of any default. A regular inspection is conducted on the factory and godowns of the client, to check the stock levels, by the bank officers along with a Stock Audit conducted by a Chartered Accountant on yearly basis.
b.Working Capital Term Loan:
Sometime the borrower fails to immediately bring its own contribution as margin while enjoying the working capital limits. In that case the bank may sanction WCTL with fixed EMI. It normally has a bit higher rate of interest in comparison to working capital limit.
c.Cash Credit Limit against Book Debts:
Book Debts of account receivables arise out of sale of goods or service on credit. Because of credit sales, the seller’s available working funds become inadequate to support the scale of operation necessitating bank finance. The system of financing credit sales or receivables by bill finance i.e. purchases or discount of bills is quite common. But another mode of financing credit sales is by way of cash credits against book debts. Under this system the bank allows the borrower to draw to the extent of the limit sanctioned to him provided the drawings are backed by adequate receivables. Advance against book debts is made by way of cash credit or overdraft. The margin for advances is normally in the range 30-40% of the book debts accepted as security. The borrower should submit monthly statements showing the outstanding book debts party-wise. The statements should be scrutinized with reference to the age of the book debts and the drawing power.

B. Non-fund Based Limits
The credit facilities given by the banks where actual bank funds are not involved are termed as 'non-fund based facilities' :-
a.Bank Guarantee: In BG, the bank guarantees a sum of money to a beneficiary. The sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract. The real estate companies, for example, normally need to furnish the BG to the Local Bodies or Authorities who sanction and approve the land for commercial,residential or industrial use.
b. Deferred Payment Guarantee
That is paid a fixed number of days after shipment or presentation of prescribed documents. It is used where a buyer and a seller have close working relationship because, in effect, the seller (beneficiary of the L/C) is financing the purchase by allowing the buyer a grace period for payment. It differs from a sight draft or time draft in that no drafts are involved but the payment is guaranteed on the stated date. However, there being no draft, the beneficiary party's ability to discount or sell his or her right to payment is restricted.

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