Overview of Business Loans
What is a Business Loan?
A business loan is a credit product designed to support customers needing to mobilize capital for production, business activities, services, or to upgrade and repair factories and business facilities. Borrowers need to have an effective business plan and collateral to secure the loan. The bank will base its decision on the value of the collateral and the purpose of the loan to determine the credit limit. Customers can use various assets as collateral for business loans, such as real estate, fixed assets, valuable papers, or business premises.
Currently, banks offer a variety of business loan packages, from real estate and securities trading to investment in production and business activities, individual businesses, and households. All customers needing additional capital for production, business, or service provision to expand their scale can apply for business loans at banks.
Features
Business loan products at banks have the following notable features:
- Banks support business loans in various currencies, either VND or foreign currencies.
- Customers must pledge valuable assets such as real estate, cars, valuable papers, or future business activities formed from the loan.
- The loan limit is large, with banks currently offering business loans covering 50 – 85% of the capital needs. Some banks provide loans up to 100% of the collateral’s value, though the conditions are stricter.
- Loan terms range from medium to long-term, typically between 1 – 8 years, with some business loan packages extending up to 15 years. However, the loan term largely depends on the bank’s package.
- Business loans can be accessed in two forms: limit loans and installment loans. Limit loans provide a certain limit over a specific period to meet regular working capital needs, such as purchasing goods. Installment loans are based on specific credit contracts to support various purposes like short-term working capital supplementation, installment working capital, purchasing machinery, equipment, production lines, and investment, building, and repairing business premises.
- Customers enjoy preferential interest rates ranging from 5 – 10% per year. After the preferential period, interest rates may vary depending on the loan package and the bank’s policies.
Classification
Currently, business loans are a highly sought-after credit service offered by almost all banks. They are generally divided into two basic types:
Limit Loans
This type of loan offers a specified limit for a predetermined period. Customers must repay the loan within the agreed timeframe. Limit loans help customers supplement existing capital and working capital for essential business activities such as forming commercial contracts, making agency deposits, purchasing goods, and repaying principal debts. The maximum term for limit loans is 12 – 24 months. This form is convenient for businesses and individuals who have proven stable business activities and specific revenue.
Installment Loans
This type is provided based on detailed credit contracts. It supports customers needing short-term working capital supplementation, enabling individuals and businesses to obtain funds for business-related activities such as upgrading equipment, infrastructure, machinery, and expanding production scale. The maximum term for installment business loans is 12 months, but it can extend for several years if the purpose is to supplement installment working capital. The borrowed amount is repaid with monthly interest and principal either quarterly or monthly.
Conditions and Procedures
Conditions
- Customers must be between 18 – 70 years old, with guarantors aged 18 – 80.
- They must have a legal business license and a minimum of 12 months of business operations.
- Customers need to have at least 20 – 30% of their own capital in the business plan.
- They should have a good credit history without bad debts at banks or other credit institutions.
- They must have collateral, which can include real estate, transportation means, machinery, goods, raw materials, semi-finished, finished products, and other collateral types as per each bank’s regulations.
- A clear, feasible business plan with a lawful purpose.
Procedures
- Loan application form as per the bank’s template.
- Project or business plan documents: Papers and documents proving the loan’s purpose for business activities.
- Income proof: Salary slips, business activity records for the last 3 months, goods purchase receipts.
- Business registration certificate, practice license (as per the law).
- Collateral-related documents.
- Outline of the production and business plan/investment project and related documents.
Interest Rates
Currently, business loan interest rates at banks are quite favorable. Initially, for about 6 months to a year, customers enjoy preferential rates of 5 – 10% per year. After this period, the rates change according to the loan package and each bank’s policy, generally around 6.8 – 9% per year for short-term loans and 9.3 – 11% per year for medium and long-term loans. Customers with transparent financial situations and good business performance may receive additional preferential programs. Moreover, since business loans allow borrowing in foreign currencies, the interest rates differ from loans in VND.
Where to Get Business Loans?
Business loans are currently only provided by banks, so you can access business loan packages there. To choose the best bank for business loans, consider the following factors:
- Compare the features of business loan packages, focusing on information about limits, terms, grace periods, etc., to select the appropriate package.
- Check if the business loan package offers preferential programs.
- The interest rate applied to the loan.
- Clear loan conditions and procedures with quick disbursement.
Important Notes When Applying for a Business Loan
Before accessing business loan products at banks, consider the following:
- Compare business loan packages from different banks to choose the best one.
- Choose a loan product that matches your capital use needs and repayment ability to avoid overdue debts, which incur high penalty fees and damage your credit score, making future loans difficult.
- Carefully review information about the loan package, including features, interest rates during the loan period, overdue interest rates, preferential interest rates, interest calculation methods, loan term, and the amount that can be borrowed.
- Examine the prepayment penalty fees and overdue fees and how they are calculated to plan your finances accordingly.
- Understand all information and terms of the loan to avoid violating loan contract terms and conditions.
- Avoid excessive borrowing and ensure having 30 – 40% of your own capital for the business plan.
- Consider a reasonable loan term to minimize monthly payments.
- Explore preferential programs for business loans at banks.
Frequently Asked Questions When Applying for a Business Loan for the First Time
- Can I apply for a household business loan if my business registration lists my father as the business owner? No, you cannot apply for a household business loan in this case. To apply, you need to change the business registration to your name or register a new business license under your name.
- Can I use real estate in my father’s name as collateral for a loan to expand my food and beverage business? Yes, you can use assets owned by family members, such as parents, siblings, or children, as collateral for the bank.
- What is the maximum loan term for a 1 billion VND loan to lease land for a business workshop? The maximum loan term depends on the lending bank, but it is generally up to 120 months for fixed asset investment loans for business activities.
- What documents do I need to prepare for a loan to expand my food and beverage business? You will need to prepare the following documents:
- Personal identification documents: ID card, household registration, marriage certificate.
- Collateral documents: Land use right certificate, construction permit.
- Income proof: Business registration, business records or receipts for the last 3 months, economic contracts with partners (if any).
- Other documents as required by the bank.
- Can I use my brother’s land use right certificate as collateral for a loan to invest in my furniture business? Yes, if you meet the bank’s conditions for a business loan, you can use your brother’s land use right certificate as collateral.
- Will I be penalized for early loan repayment? Yes, early repayment will incur a prepayment penalty fee as per each bank’s regulations. The prepayment fee = Prepayment fee rate * Early repayment amount.
- What fees will I have to pay when taking a business loan? When taking a business loan, you will need to pay:
- Real estate appraisal fee.
- Notarization fee for the mortgage contract.
- Asset transaction registration fee.
- Loan insurance fee (if any).
- What is the interest rate for late payments? The late payment interest rate is 150% of the in-term interest rate.
- Can I get a business loan to supplement capital for my clothing store without a business registration? To qualify for a business loan, you need to register your business or get confirmation from the local authorities about your actual business activities.
Business loans are a credit service supporting capital needs for customers looking to expand their business activities. Before deciding on a business loan, customers should carefully consider factors affecting the loan and interest rates. Hopefully, the information above has helped you understand this loan product better to make an informed choice. If you need a business loan, you can leave your inquiry HERE for free consultation and assistance in making the right choice.
