Dreaming of your own storefront? Our guide on securing a loan to buy a shop in India unpacks the process, from eligibility to paperwork. Start here!
Imagine this: the exciting sound of your shop’s shutter raising up for the first time. New stock arrives and the first customer walks in. For many aspiring shop owners, this dream feels both tantalizingly close and extremely distant. What’s stopping you from realizing this dream? Funding. Let’s face it, your dream business location won’t be cheap. This is where a loan to buy a shop in India shifts from a boring loan to the key that unlocks your business’s immense potential. Navigating the world of commercial loans feels like trying to solve a Rubik’s Cube in the dark. Don’t worry. I’ve walked down this road with countless businessmen and I am more than happy to help you find the way.
Have You Fully Prepared Yourself for the Leap?
Take a moment a moment to pause and consider if you are ready to look for interest rates. Take a deep breathe. Taking a loan to buy a shop in India is a big decision and a massive celebration for any entrepreneur. However, it can be overwhelming considering the commitment it brings along with it such as massive business debt.
The Upside: Well, you are building an asset. Your business now has a permanent home, so there is no more landlord nightmares, surprise rent increases, or being asked to leave. It’s your territory and your rules.
The Downside: You are the landlord now! All maintenance, repairs, and property taxes are your responsibility. This comes with a large upfront financial burden, and a significant amount of your capital is now locked up, impacting your business’s flexibility.
So, consider your options. If asset creation and stability sound good, let’s proceed.
Different Shop Loan Flavors
When it comes to being a shop owner in India, not all loans are equal. Here’s a rundown of the fourshops that you are likely to encounter. Think of it as a menu.
Commercial Property Purchase Loan: This is the headliner, the star of the show. Designed for buying a commercial space, it can be a shop that is ready or one that is under construction. The banks get this game and have streamlined, or mostly streamlined, processes for it.
Loan Against Property (LAP): Are you the owner of a residential or commercial property that is not encumbered by any loans? You can use it as collateral to receive new funds or purchase a new shop. Interest rates with this kind of loan can be more appealing.
Business Loan (Term Loan): Generally used for working capital or with a machinery requirement, a few unsecured or secured business loans can be big enough to cover the down payment or even buy the shop fully. While not the most prevalent option, it’s doable.
Cracking the Eligibility Code: What do lenders want, really?
Lenders do not simply hand out loans, they do so as a calculated, strategic investment in your business. The same logic is expected when getting a loan for a shop in India. Here’s how to make that happen.
View loans from a lender’s perspective. You’re not the only one looking for a loan, so banks will put in some of their cash to make an investment. What they see is you a shop owner down the line, and that’s what makes this a win-win for all.
Your CIBIL score is your holy grail: Anything above 750 is a win for you. It tells the bank that you’re not new to the ecosystem. Bank’s facilities you a loan, with a low score? You’re a no-show for all the banks.
Vintage and Stability: Is your business a young startup or a seasoned veteran? Like most lenders, they want to see a business that has been operational and profitable for at least 2-3 years. Proof must be provided that the business is capable of generating sufficient income to meet the EMI obligations.
Show Me the Money: Income Tax Returns: ITRs and bank statements serve as the lynchpin of your application. In the case that the business is thriving, your bank statements will reflect healthy profits, continuous cash flow, and an overall impressive turnover.
Age and Profile: Generally, lenders prefer seeing applicants within the age range of 25 and 65 years.
Paperwork has always been a daunting task for any loan veteran and for every aspiring loan applicant, the final frontier. However, if all your files are in order, the journey will be a breeze.
Document Arsenal:
Identity and Address proof (KYC): The usual suspects; Aadhaar card, PAN card, passport and voter ID.
Business proof: Business registration certificate, GST registration, partnership deed if applicable.
Legal documents: Audited financial documents with ITRs from the last three years, along with bank statements from the last six to twelve months.
Property Documents: For the purposes of purchasing a property, a copy of either the Allotment Letter, Buyer Agreement, or the Title Deeds is required. This is important for the legal and valuation departments of the bank.
Pro-Tips from the Trenches
While assisting people with problem, I have learned a few things after all of this.
Looking for a New Home? Try Different Offers: Although your bank is good, a different lender may offer you a lower interest rate of 0.5%. That small rate could save you lakhs over the 15 year period. So make sure you shop around.
There Are Actual Additional Expenses: The stamp duty, registration, GST, and processing fees are not included in the property loan. Due to these missing expenses, loan expenses could reach 8-10% of the property’s value. So, make sure you set aside some for it.
Familiarize LTV: A bank or lender will never fund 100% of the property value. The most they will offer is 70-80% LTV. For example, if your shop is worth ₹50 lakh, you will likely receive a loan of ₹35-₹40 lakh. A good loan profile helps in negotiating for better LTV, but the rest of the ₹10-₹15 lakh will need to be paid.
Create A Basic Business Plan: Showing projected revenue, projected costs, and how the new shop will improve the business, even if it’s not requested, demonstrates that you’re an innovative and serious entrepreneur. This could give you an edge over the competition.
Securing a loan for a shop in India is not an unreachable goal, but rather, a rewarding, challenging journey which requires a significant investment in preparation, a lot of patience, and plenty of paperwork. However, that feeling of claiming a space that is entirely yours is truly impossible to describe. This is the foundation that you will use to build your business. So, put in the necessary research, get the required documents ready, and start the conversations with lenders. Your dream shop is within reach, you just have to be bold enough to take the leap.
