Establishing and/or growing a business or a professional practice requires funding for premises, equipment, salaries, expenses on overheads, etc. This becomes a constraint for a businessman or professional. Banks come to the rescue with professional loans, which are specifically designed for entrepreneurs.
Banks offer loans to professionals like doctors /medical practitioners including dentists, chartered accountants, cost accountants, practicing company secretaries, lawyers or solicitors, engineers, architects, surveyors, construction contractors, management consultants, etc. Accredited journalists and cameramen who are freelancers i.e. not employed by a particular newspaper / magazine or even businessmen can avail of this loan. Some banks do not directly offer professional loans but enable the borrower to take a loan as a personal loan. However, in this case, the loan is given to established professionals since this is an unsecured loan. Some banks offer professional loans to both, new entrepreneurs based on qualifications and existing ones with an established track record.
The loan amount will depend on the need and the bank’s assessment of the applicant. Usually, banks offer loans ranging from Rs 25,000 to Rs 15 lakh.
Different banks charge different rates of interest, which ranges from approximately 8 to 18 per cent. The rate depends on the applicant’s financials, loan amount, tenure, security, the bank’s prime lending rate, etc.
PROCESSING AND ADMINISTRATIVE CHARGES
Processing charges range from approximately 0.25 per cent to 2 per cent of the loan amount.
The tenure of the loan can range from approximately 12 months to 6 years.
Usually for small loans, say up to Rs 25,000, no collateral security is required. However, for larger loan amounts, collateral security in the form of house property or commercial property or in the form of a third party guarantee is required.
Professional loans are repaid in the form of Equated Monthly Instalments (EMIs) i.e. a fixed amount is repaid each month.
Banks usually charge a pre-payment penalty of approximately between 1 and 4 per cent of the amount prepaid. However, State Bank of India does not charge any pre-payment penalty for money borrowed under the scheme for financing professionals and selfemployed persons.
To apply for a professional loan, one needs to submit identity proof, address proof, income proof (bank statements, income tax returns, profit and loss accounts), project report, quotations of equipment/machinery to be purchased and security documents. Additionally, banks may require other documents based on the applicant’s specific case.