A soft loan is basically a loan with an interest rate below market interest rates. This is sometimes called soft lending. In some instances, soft loans offer concession to borrowers, like low payment periods or interest holiday. Soft loans are typically offered by government to projects they feel are worthy. The money can then be used for the implementation of the project.
These are normally given to governments that are implementing development projects in developing countries. In order to apply for the soft loan, you will have to convince the lender that your proposed business idea will make financial sense. The criteria for eligibility may vary from one country to another. But the basic criterion is that your business idea should earn enough revenue to pay back the loan in two or three years. The amount depends on several factors, including the number of employees and the size of the capital.
One popular source of a soft loan is the Chinese government. The Chinese government has a large stake in the countries emerging markets. Because of this, most of the time the Chinese government offers financing at below-market interest rates. The main reason why they do this is to help these developing countries become more self-sufficient. The Chinese government makes over $60 billion in revenue every year through various projects in developing countries.
Some private companies also provide these loans. But the loans from private companies are much more risky, since it is not clear whether the company is really reliable and will repay the loan amount on time. Many banks only offer the soft loan to government institutions or to the Chinese government itself.
There is no hard and fast rule about which one to apply for a soft loan or a hard loan. They are available at all times and you can get them at the bank, the financial institutions and even online. The most common type of loan available to individuals is the hard loan. In hard loan, the applicant usually needs to have a good credit rating and a significant income. He must be able to prove that he is capable of paying back the monthly installment within the agreed period. In some cases, the interest rate on the hard loan may be higher than the market rate.
If you want to take a soft loan from a private institution, there are few things you should look for. Look for the private institution's track record. Make sure that it has not been involved in any negative activity such as fraud. It is important that the institutions you choose are legitimate; otherwise you may get cheated.
It is important that you know your exact repayment needs. Determine the rate of return you expect. This will help you calculate the amount of money you need to pay and the interest rate on your soft loans. After you determine your needs, you can shop around for lenders who will give you the best deal. The Internet is the best place to search for these companies because they are mostly listed there.
Another way to get a good deal is to ask your friends and relatives about their soft loan experiences. You can also look up consumer guides online to know more about these products. There are many sources available to get information on these loans. Look for the terms and conditions of the loan contract and make sure you understand every aspect before you sign anything.
If you have other resources such as a credit card statement or your recent bank statements, then you can use this to apply for soft loans. You can even show these documents to a potential creditor during a face-to-face meeting. If you cannot present any documentation during the meeting, your chances of getting the financing will be severely hampered. Most importantly, it is important to remember that the Chinese government tightly monitors private funding sources. If you have bad records, then you may not get a new loan even after you have already paid off previous loans.
Private institutions and banks may not approve soft loans for developing countries because of the higher risk involved in the process. Even though the interest rates are higher, they are still worth considering if you really need a loan. The main reason is because they do not require you to have collateral and they allow you to pay the loan in installments. The repayment schedules enable you to manage your budget.
In conclusion, there are pros and cons of concessional financing for soft loans for developing countries. While the risks are higher than a regular loan, you may be able to obtain the finance at a reasonable interest rate. If you cannot manage your budget properly, then this is definitely a better option. Moreover, you may now see how well you know the people from whom you intend to make the purchase.