How Does Shop Loans Work?

Shop loans are a type of financing designed to help shop owners cover various business expenses. Here’s how shop loans typically work:

• Purpose: Shop loans provide funding for various needs such as purchasing inventory, renovating premises, buying equipment, or managing day-to-day operational costs.
• Loan Amounts: The amount you can borrow typically ranges from a few thousand to several crores, depending on the lending institution and your business requirements.
• Types of Shop Loans:

1. Secured Loans: These require collateral, such as property or assets, which can lower interest rates.
2. Unsecured Loans: No collateral is needed, making them more accessible but often with higher interest rates.

• Interest Rates: Interest rates typically start at 10% p.a., but they vary based on the specific requirements laid down by the lending institution. Typically, interest rates are based on factors like your credit score, the overall financial health of your business, and whether they are secured or unsecured.
• Repayment Terms: Loans are generally repaid in equated monthly instalments (EMIs) over a set period, which can typically range from 12 months 60 months. Many lending institutions offer flexible repayment options to accommodate the cash flow needs of shop owners.
• Application Process, Documentation, and Loan Approval: You typically need to provide proof of identity, proof of income, business registration documents, and bank statements (usually 6 months). After submitting your application and documents, the lending institution will assess your creditworthiness and business viability before approving the loan.
• Usage of Funds: The shop loan can be utilized for various purposes including:

1. Purchasing inventory
2. Upgrading equipment
3. Renovating or expanding shop space
4. Covering operational expenses like salaries and utility bills