Apply for Bank Loans in Nepal

Are you thinking about applying for Loan in Nepal and not sure of where to start? What documents to prepare? What are the charges?

If you are answering affirmative on any of the above questions, you have arrived at the right place for the answers! In this article I would try to explain different avenues of Loan approval process and try to solve those questions.

Loan approval from Banks is one of the difficult tasks in Nepal. Loan approval process of Bank’s are not transparent and the presence of middleman between the banks and the Loanee creates even more confusion.

Loans in Nepal are generally backed by the collateral securities in the form of Land and Buildings. Bank’s mortgage your property in their names and provide you the required funds for specific tenure with periodic repayment of principal and interest and charges.

Let’s discuss this process under different headings:

Why Loan?

The First question you should be answering to yourself before applying for loan is why do you want that loan? What are your plan for the utilization of the fund. The Loan provided by the Banks is the money of the public and is strictly regulate by the central bank. Therefor you should be very clear about the utilization of the fund. You should also be clear about how you plan to repay your loan? What are your sources of income for repayment? What tenure do you want? Which method of repayment do you want i.e either monthly repayment or quarterly repayment. You should be very clear about all this questions before you visit any bank for loan application.

What are Different Loans?

Now if you are sure about your need of the loan, let us know about the types of loan facilities in Nepal. Loan facility in Nepal can be broadly classified under two major types which are as follows:

1. Business Loans: These are the loans provided for Business units like firm/companies for the operation of the day-to-day business activities or for long term capital investment. Short term loans are provided in the name of working capital loan/demand loan/overdraft loan etc and Long term loans are provided as term loan for the purchase of capital assets like machineries or  land/buildings or vehicle loans or other fixed assets of the business entity. You have to repay interest as periodic payment and principal at the end of the tenure for revolving nature loans and monthly/quarterly installments (principal & interest) in case of term nature loans.
2. Personal Loans : These are the retail loans in the name of the individuals for personal purposes like home loans, real estate loans, education loans, auto loans etc. You will be required valid and tax paid income sources of minimum double of your loan repayment amount to be eligible for personal loans. These can also be availed as Term loans or Overdrafts as per the need of the borrower.

Both types of loans are backed by the collateral of the Real estate property. Tenure of the loans are one year or less for revolving nature loans and borrower can choose between 5 to 50 years based on the nature of product for term nature loans. Repayments are generally monthly or quarterly as agreed during approval.

What are the Charges:

Many of you might be curious about what are the charges for availing loans in Nepal, apart from Interest on your principal amount you will have to incur following charges while availing loans in Nepal: –

• Administrative charges/service charge to bank which is around 0.75 percent to 1 percent of loan amount, this is one time fee for term loans and revolving loans are renewed every year with the charges of 0.15 to 0.20 percent of the loan limit.

• Credit Information charges which range from Rs.250 to Rs.500 per Borrower or Guarantor for obtaining the credit information from Credit Information Bureau.

• Valuation charges for the valuation of collateral securities to be paid to bank’s listed valuator which varies from banks to banks and depending upon the size of loan with a minimum of around NPR 5k and around 15k to 20k for the valuation one crore value of property.

• Insurance Charges which vary as per the nature of insurance of the individuals or stocks or assets to be paid to the insurance companies.

• Registration/ Mortgage charges at the Malpot Office for the mortgage of collateral securities.

• Charges for Balance sheet and Financials in case of Business loans depending upon the size of the loan amount.

• Pre-payment charges for term loans (greater than 50 lakhs only) in case you settle the loan before five years of the loan approval varying from 0.15 to 1 percent of the loan limit depending upon your settlement date, higher rates for early settlement.

• Commitment charges of 0.15 to 0.2% of the unutilized revolving limit for Overdrafts/revolving nature loans if you fail to utilize at least 60% of the sanctioned limit to be paid at the time of renewal/settlement of the facility.

• Apart from these mandatory charges, may be charged few hundreds as service fees for subscription-based services if you opt to utilize the services like internet and mobile banking facilities to keep track of your loan accounts.

• Bank charges and interest rates changes from time to time and can be easily found on bank’s website published under Standard Tariff of Charges and Interest rate section.

What are the Interest rates?

Interest rate of Banks in Nepal are tied-up with their Base Rate. Banks generally charges 0 to up to 7% premium on and above base rate. Base rate and Interest rate of different products are updated monthly and published on the Bank’s website on the last day of the Nepali calendar month.

Since Interest rate are tied up with base rate, Interest rate for the loan changes for each change on base rate. Change of base rate are usually small and ranges below one percent on each change. Interest rate of Banks are lower than the Co-operatives and are regulated by the strict interest rate guidelines of Nepal Rastra Bank’s Directive.

How much Loan can you get?

Size of the loan will be as per the need and the request of the customer provided that it is backed by the proper value of the real estate collateral as per banks policy. Personal loans are generally financed up to 50 percent of the value of collateral and Business Loans are financed up to 70 to 100% of the Fair Market Value of Collateral at different banks.

What are the Documents Required?

Now since you are aware of the charges and ready to go for it, lets talk about the documentation requirement of the banks. If you can pay the charges and submit these documents, then you are definitely going to get your loan approved.

Documents Required Applying For Business Loans:

• Registration document of the firm/company
• PAN of the firm/company
• Latest Tax Clearance certificate/vouchers
• Partnership deed for partnership firm
• MOA/AOA for the Company
• Share Laagat in case of company
• Minute of the company for loan application and appointment of the authorized person
• Citizenship, PP photos for authorized person/partners/directors/guarantors
• Last two years audited balance sheet and projected financial statement
• Lalpurja for collateral property
• Property tax paid receipt for the current fiscal year
• Four Boundary certificate from local authority of the collateral property
• Blueprint and trace map for the collateral property
• Building completion certificate if building is to be mortgaged as collateral

Documents Required Applying for Personal Loans:

• Citizenship & PP Photos for borrower/guarantors
• Personal PAN Number
• Income source document like salary certificate, bank statements, rent agreements, remittance income, Capital gains and any other legal source of income with tax paid proof documents
• Lalpurja for collateral property
• Property tax paid receipt for the current fiscal year
• Four Boundary certificate from local authority of the collateral property
• Blueprint and trace map for the collateral property
• Building completion certificate if building is to be mortgaged as collateral
• Vehicle quotation for auto loans and vehicle as collateral
• Demat statements is shares are to be held as collateral
• University documents and fees details for Education loan

Final Thoughts

We are at the end of the article! I hope all your questions at the beginning of the article are resolved.

Loan referred on this article for businesses aims at the loan size pertaining to SMEs and MSMEs. Banks provide these loans through their SME and Retail lending Departments.

These are the most common processes and documents accepted by most of the commercial and development banks in Nepal. Apart from this, some bank may have few specific documents requirement which are bank specific and cannot be generalized.

However, I can assure you if you read this article thoroughly and visit a nearest bank branches you should be very confident that most of your bases are covered for you to start your loan application process.

I wish you a speedy Loan Approval!