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Things to Consider Before Taking a Shop Loan

As a shop owner, you may require finance, from time to time. You may want to renovate your current shop or expand your business by buying another shop. To fulfil these objectives, you need additional funds. You can obtain these funds either by reinvesting your existing earnings, or, by taking a shop loan. By taking a shop loan, you can invest your actual business earnings elsewhere and earn attractive interest or dividend income on the same. With attractive interest rates on financeoffered by leading lenders such as finance, expanding your retail operations is affordable.

Here are a few things you need to be careful about before taking a loan for shop purchase.

Construction status

A shop purchase is broadly divided into two types, viz. a ready to occupy space and an under-construction property. Between the above two categories, it is relatively easier to obtain a loan, for a ready-to-occupy property. Further, an under-construction property would take comparatively more time, to give business returns. Therefore, it is wise to choose a ready-to-occupy commercial space for your new shop.

Your credit history

A good credit score can help in getting your shop loan application approved easily. With a good credit history, lenders can get an idea about your financial credibility. You can build a good credit record by paying off your EMI and credit card bills on time. Lenders can thus feel confident about your loan repayment capability and are more likely to approve loan.

Your business plan

A healthy business plan can be an essential pre-requisite for obtaining shop loan. A carefully chartered business plan can instil the lender’s confidence about your loan affordability. Your business plan can include the following details:

–        Financial projections for the next three to five years.

–        The scope of your business

–        Business profitability

–        Information on the usage of funds received through loans

–        Utilising your investment in the market

A strong business plan can help you in getting your loan for shop approved, easily. After you meet the eligibility criteria, you can avail a shop loan from Bajaj Finserv by furnishing only two documents i.e. your KYC documents and certificate of business existence. You can apply for a shop loan online from Bajaj Finserv in three easy steps.

LTV, DSCR and NOI Ratios

–        Loan To Value (LTV) ratio is the ratio of property value and the size of your loan. It shows a lender’s funding percentage. LTV on shop loan is generally lesser than 55%. A low LTV ratio means more self-contribution. Thus, you need to apply for a loan with the maximum LTV ratio.

–        Debt Service Coverage Ratio (DSCR) measures your capability to repay your loan, after covering all the expenses. The higher the DSCR ratio, the higher is your capacity cover expenses. Lenders generally expect borrowers to show DSCR of 1.25% or more.

–        Net Operating Income (NOI) represents your actual requirement for a shop loan. The formula for calculating NOI is as follows:

NOI=Net operating expenses – Total business revenue

Higher the NOI, higher are your chances of availing shop loan. You can have an idea about your NOI by looking at your balance sheets carefully.

Management efficiency

Having talented and skilled professionals is an asset to any business. You may have a variety of items in your shop. However, the number of items sold depends on your staff capabilities as well. A lender may also want to see the effectiveness of your staff, along with your business capabilities. Active management can translate into higher product sales. Thus, higher management competency can result in faster loan repayment.

Smart deals

Looking for special offers on a shop loan is wise. Bajaj Finserv offers high-value collateral-free loans with a flexi loan facility and pre-approved offers on shop loan. Obtaining a loan for shop had never been easier; thanks to the quick apply facilities offered by Bajaj Finserv. All you have to do is share a few basic details and check out your pre-approved offer.

Availing loan for purchasing commercial property is much different than availing a residential property loan. Borrowing for your shop is a good idea, provided, you have a carefully designed business plan. It also depends on the effectiveness of your management staff.

Are you also planning to renovate your shop by purchasing new machinery and equipment? You may want to look into a machinery loan to buy new material for increased efficiency. Bajaj Finserv offers many attractive benefits on business loans.

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