Professional loans are personal loans for professionals like accountants, dentists, journalists, engineers, solicitors, surveyor, architects, and management consultants etc., who have the proper skills and are qualified to practice their trades. Professional loans can be availed for requirements pertaining to their businesses such as purchase of equipment, construction, business premises, renovating premises, working capital, among others. These loans are meant to help a self-employed professional increase or improve his/her business and overcome liquidity crunch when buying equipment or investing in their own business. These loans are available primarily from government banks, however some private banks also offer professional loans.
Professional loan eligibility criteria
The eligibility criteria for professional loans is simple, with borrowers allowed to Apply for Loans in both personal as well as joint capacities.
- People who are already practising their trades or novices in different professions, with licenses issued by state or central legislations.
- Group or association of people indulging in one profession given that every member of such a group is licensed and is duly qualified to practice the said profession.
- Copy of professional certificate denoting that they practice the said profession.
- Professionals can include people having a diploma/degree who are sufficiently qualified or possess the skills to practice professions such as lawyers, journalists, chartered engineers, chartered accountants, software engineers, management consultants and similar fields.
- Individuals, joint borrowers, partnership companies and firms and proprietorships can apply for this type of loan.
- Applicants within the ages of 18 to 65 years can apply for professional loans.
Documents required to apply for a professional loan
Professional loan applications typically ask for minimal documentation, mainly pertaining to proofs that the applicant is indeed a self-employed professional in a particular field.
- Membership certificate copies issued by relevant professional authorities to individuals or individual partners.
- Firm registration certificate copies for registering with applicable professional authorities, apart from any other similar certifications as specified by the bank or loaning institution.
- Papers or documents that help in judging the repayment capacity of the borrower, such as expenditure and income statements from 3 fiscal years, balance sheet statements, assessment order copies/tax return copies of individual, firm, partners or guarantors, apart from debt service obligations particulars etc.
- Recent utility bill showing name and address, or any other similar identity document.
Professional loan interest rates and charges
- Interest rates vary between 10% and 18% according to lender.
- Margin usually ranges from 15% to 25% of the loan amount.
- The maximum loan amount varies from Rs.10 lakhs to Rs.30 lakhs as per bank's’ policies.
- Processing fee is generally charged within 0.20% to 1.00% of the loan amount.
Features and benefits of professional loans
These loans are packed with features as per individual banks’ policies. Each bank offers its own set of benefits and features, however the outlook for the offerings is more or less the same for all lenders.
- Hypothecation of the purchased assets or mortgage of premises accepted as primary security.
- Half the loan amount as collateral security along with one guarantor, preferable spouse of applicant may be required, as per loan documents.
- Collateral security may not be required for premise acquiring requirements. If required, immovable properties or office equipment will be accepted as collateral by the loaning authority.
- Some of the accepted collateral securities include LIC/KVP/NSC policies, land and building, bank deposits etc. subject to acceptance by the bank.
- Personal guarantee of partners/friends/family/title holders of collateral securities etc. may be required as per your lender.
- In case of loan being used for auto purchase or related usage, loan terms will generally be the same as for auto loans.
- Maximum repayment tenure is generally 60 months, though some banks also offer 84 months or more repayment period to customers. This tenure includes/excludes up to 6 months moratorium.
- There is generally no prepayment penalty on professional loans.
- Business-related travel expenses such as hotel boarding, airfare, seminar fees etc. can be covered with the loan.
- Self-assembled equipment such as computers are generally not eligible for financing.
- Payments may be made directly to the dealers/suppliers if the situation so arises. The loan may also be disbursed in instalments after the lender verifies the end use of the finances.
- Quick loan approval and disbursal.
- Attractive interest rates and repayment tenures.
- Easy and simple application process.
- What are the purposes covered under financing through professional loans?
Loans can be sanctioned for purposes such as financing new equipment purchases, construction of new premises or renovation of old premises, working capital needs, business-related travel expenses, honing skills through expansion etc. The basic premise for sanctioning professional loans is that the borrower should be able to justify the loan with respect to his/her trade and direct implications of the loan amount on his/her profession.
- Is there a cap on the amount of the loan I can avail?
Most banks will have a maximum limit of professional loan amount. This amount varies from bank to bank, with the actual amount decided as per the repayment capacity, disposable income and requirement.
- Will the end use of the loan amount be monitored by the lender?
Yes, some lenders may ask you to explain how the loan amount is being used. Some banks may even disburse the loan amount in instalments, with further instalments released subject to satisfactory response from the bank with regards to use of the finances.
- What is the repayment tenure for professional loans?
In general, a professional loan has to be repaid within 5 years of approval and disbursement for fixed rate loans. Floating rate professional loans generally have a repayment tenure of 7 years.
- How will the loan amount be disbursed?
The loan amount can be disbursed as a lump sum by your bank. However, some banks will disburse the amount in instalments after you have shown satisfactory usage of the loan amount to the lender.
- Is this a secured or unsecured personal loan?
Professional loans are Secured Loans wherein you have to submit collateral securities apart from a guarantor to vouch for the loan on your behalf.