ATM :: How to borrow large sum despite low net take home income

SUKANYA KUMAR Founder & Director, | Dec 01, 2015, 04.16 PM | Source:
While lending money, lenders are keen to ascertain the repayment capacity of the borrower. No wonder, net income of the borrower plays a crucial role. However, there are some ways out to raise money despite low net income.


Almost all the times we find lenders doing loan on basis of your actual net income, which is the safest option. However, given the high levels of cash transactions in many businesses, it becomes a bit difficult for many businessmen and professionals to report high net income regularly. Low net income does not necessarily mean that such businessmen are bad borrowers. Over a period of time, banks have realized this. They have developed loan products that enable a businessman or a professional to borrow for his home buying or to raise money against his property (loan against property -LAP) without having much to show in papers.

These loan products are for those who have proven track record of other loan repayment and/or sustainable business for many years in specific industry and also a reasonably healthy bank balance.

Here are a few of those loan products discussed hereunder:

Other loan track: There are many businessmen, who have accessed big loans such as such as, equipment loan, mortgage, commercial vehicle loan. They have been repaying the existing loans without any default. In such circumstances, a bank may look at such a borrower as a promising customer. A bank may want to lend to such a borrower a sum equal to or less than his previous loan. For example, a businessman borrowed Rs 50 lakh for machinery from Bank A three year back. For last three years, he has been sticking to his loan repayment schedule. In such a scenario, bank B may consider lending him a sum of Rs 50 lakh or lower. Typically bank B may offer him a sum equal to a fraction of his earlier loan, say 80%, which makes it Rs 40 lakh in the aforesaid case. However, the catch is, the other loan should not have been closed or paid-off more than six months ago.

Bank balance: If the borrower has a healthy bank balance and the average monthly balance can well-substantiate the new EMI for the home loan/LAP he wants to take, this could be accepted by the lender.

EMI equaliser: Depending upon the total other loan EMI-s, a borrower is already servicing, the new home loan/LAP can get approved. A market average of 1.5 times of the current EMI is allowed as the total exposure. For example, if someone is already paying Rs 2 lakh as his all other EMI-s put together, then he can be allowed another Rs 1 lakh as additional EMI for the new loan, which will be an approximately Rs 1 crore borrowing.

Same loan track: During a home loan transfer, if the borrower doesn’t want to go through the hassle of doing the paperwork again, then basis the previous track on the same loan, the transfer can happen. The reduced EMI in the new bank can also make for some room to borrow an additional amount as ‘top-up’ loan (cash in hand) without any additional documentation.

Gross profit method: For an industry where the turnover is very high but the profit margin is always low (trading business), the lenders do approve of the calculation basis the gross profit and not the net.

Turnover based on industry margin: If the borrower is in a manufacturing or trading business then a standard profit margin has been internally set by the borrower. For example, a manufacturing unit with Rs 2 crore of turnover is expected to make a 10% profit and thus the income can be considered as Rs 20 lakh and basis this the loan application can be granted, even if it is not shown. Similarly, for a trading business, it could have been set at 5% as there are no assets such as machinery, plant, semi-finished goods. A manufacturing unit typically has such assets and been flagged at a little higher risk grade. At the same time, a service industry may not be considered for this type of surrogate funding at all.

Gross receipts: This programme is applicable for self-employed professionals like chartered accountants, architect, engineer, doctors, who though receive a high gross amount, their net profit may get eroded through salaries to their staff or other establishment costs. For them, a special eligibility calculation method is adopted by the lenders on the gross receipts.

Liquid income programme: An estimate is drawn by a team of chartered accountants appointed by the lender who visit the work premise of the borrower to know the minute details of the business. For example, if someone has a business of stationery-shop or saree-sales or sending truckload of sands from one destination to another, it is not very sure how much of documentation is in place. Most transactions are done without proper bill and challan and sometimes are multiple transactions without a receipt. However, these could be quite profitable business and safe to lend.

No income proof (60:40): If the borrower pays 60% of the property cost towards acquisition and his credit score is fine, then without considering his income-documents, 40% is funded as home loan. This is due to the majority stake (investment) in the property by the borrower, which makes the lender comfortable, especially when he hasn’t had any bad credit history earlier.

Premium relationship pre-approval: Some banks have this facility to offer you a ‘pre-approved’ loan, basis the borrower’s profile and his banking relationship in terms of deposits and investments made through their banking channel. This doesn’t require submission of any income proof and only the mandatory KYC norms to be met with.

So, do not lose your heart if your net profit shown is not too high but you are confident of paying off the loan. There are lenders who understand your business and will help you get the funding too.

It is important to note that a borrower’s assets are not considered as income as many make that mistake of believing that if he owns properties worth Rs 10 crores, the lender will be happy to give him a loan. It is not so. A borrower needs to have regular flow of steady income for the lender to extend even the first rupee.

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