Professional loan is a funding or credit option extended to professionals such as doctors, chartered accountants, architects and others, for setting up and growing their business or practice. These are specifically meant for individuals with professional qualifications, and the loans are given based on their capabilities, expertise, track record, revenues, and reputation.

Features of Professional Loans

The professional loans, without pledging collateral, usually range from Rs 50,000 to Rs 50 lakhs. With collateral, the amount can even go up to Rs 2 crore. The repayment period can vary from a year to five, depending on the amount, interest rate, and the borrower’s repayment capacity. The lending institution can also be negotiated with for alternative repayment options, with a good borrower-lender relationship being a key contributor.

Eligibility Criteria

Professionals currently engaged in their practice can avail professional loans. In effect, all professions where a committed practice and steady stream of income is assured are covered. While experience criteria can vary among lenders, in general at least four years of post-qualification work experience is required for doctors and CAs, while it is usually five years’ work experience for other professions.

Lenders also look at the income generating capacity of the business or practice. The business or practice should have been making profits for at least two years, and the minimum annual turnover should be Rs 1 lakh. The revenues are important because the lending institution has to ensure that the loans given will be repaid.

The minimum age for availing a professional loan is 25 years, while the upper age limit is 65 years at the time of loan maturity. In some exceptional cases, these age limits can be relaxed.

Interest rates on Professional Loan

The interest rate generally applicable for professional loans varies from one lender to another and depends on various factors such as your credit worthiness, the prospects of the business or practice, etc. If backed by security or collateral, the interest rate can be lower. The processing charges applicable on professional loans can go up to 2.5% of the amount disbursed, subject to caps at the bottom and upper ends of the scale.

Usually, professional loans or any loan for that matter can be repaid earlier than the maturity date. However, most financial institutions charge prepayment penalties for repaying loans within a year. Some lenders do not allow prepayment until 6 to 12 instalments have been paid. There are also penalties on late payment of loan instalments.