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Soft Loan in India

With globalisation, country border lines are blurring, therefore, helping different economies, cultures, and businesses to interact. As we enter into a new decade, Indian companies are opening up their products and services to global financial markets.

Now, more businesses in India are looking at foreign investments and loans to raise capital, owning to low interest rates. While looking for a big business loan in India, businesses seeking capital and investments from overseas that prove to be a more lucrative alternative of borrowing and financing with interest rates as low as 2.75 per cent per annum, which is fixed for the complete tenure. Every company at some point or another requires funds to either stay afloat or expand their current business; here is where soft loans play an ideal role with its flexible characteristics and cheaper interest rates.

What is Soft Loan?

Most simply, soft financing or soft loan in India come with a below-market rate of interest. It is not only sought-out for its considerably low interest rates but often also come with concessions to borrowers, such as long repayment periods or interest holidays. Governments usually offer soft loans to projects they think are worthwhile. “Soft” is commonly mistaken to indicate the below market interest rate, however, the term is instead based on the lack of fixed dates for repayment.

Who is eligible for soft loan in India?

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    Businesses that are registered under the Companies Act, 1956

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    Soft loan being permitted by the Government as a source of finance for Indian Corporate for expansion of existing capacity as well as for fresh investment. This is also given to promote small and medium sized enterprises.

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    Financial organizations such as IDFC, IL& FS, Power Finance Corporation, Power Trading Corporation, IRCON and Exim Bank that are dealing exclusively with infrastructure or export economics.

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    Banks and financial institutes which had participated in the textile or steel zone restructuring package as permitted by the Central Government.

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    Any other entity as permitted by the Reserve Bank of India.

For investment (such as import of capital merchandises, new ventures, modernization/ expansion of prevailing production units) in real sector – industrial sector including small and medium enterprises (SME) and infrastructure segment – in India

Who can lend a soft loan in India?

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    International banks, export credit agencies, and global capital market.

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    Multilateral financial institutes, viz., IFC, ADB, CDC etc.

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    Foreign equity holders who are listed by the Reserve Bank of India.

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    Supplier of equipment’s only if the amount of loan raised does not outdo the whole cost of the equipment being supplied by the lender.

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    Any other entity that is approved by the Reserve Bank after consulting the Government of India.

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    As per policies, offers from unauthorized sources will not be approved.

Route to get soft loan | Government or Approval Route: The Reserve Bank of India (RBI) on 4 September 2013 issued a notice that allowed companies based in India to borrow money from foreign shareholders for business activities, including funding general corporate purposes. In order to get the loan, the Indian company has to follow a set of guidelines and apply with the RBI through the approval route. The RBI then conducts an extensive evaluation, which goes on typically for some months, before producing its final verdict.

Benefits of Soft Loan in India

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    A significant advantage is the considerably low rate of interest. For big business loan in India, enterprises, now, instead of raising capital from within the country are looking at foreign options given interest rates as low as 2.75 per cent per annum.

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    Companies, by associating with entities placed outside the country, have the opportunity of being a part of the global financial market. Availability of a larger market gibes companies the chance to satisfy larger requirements.

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    Soft loan, as the name suggests, is just a loan and thus, does not dilute stake in the company. Meaning, a company gets funding and capital without giving voting right and by extension control to lenders.

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    The borrower can diversify the investor base with soft loan in India.

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    Any other entity that is approved by the Reserve Bank after consulting the Government of India.

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    Borrowing from foreign lenders comes with an access to international markets and better exposure and opportunities.

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    The economy also enjoys benefits, as the government can direct inflows into the sector, have potential to grow. For example, the government may allow a higher percentage of sot loan funding in case of the infrastructure and SME sector. This helps in an overall development of the country.

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    Avenues of lower cost funds can improve the profitability of the companies and can aid economic growth.