Introduction
When it comes to business loans, one term that often surfaces is “margin money”. Margin money refers to the percentage of the total cost that the borrower needs to contribute towards the business venture. This blog post aims to demystify the concept of margin money and how it affects your business loan cost.
Types of Business Loans and Their Margin Money Requirements
The requirement of margin money can differ depending on the type of business loan.
Equipment Financing:
Margin money usually ranges between 15-25% for this type of loan.
Working Capital Loan:
These loans often have lower margin requirements since they are generally short-term.
Calculating Margin Money
Margin money is typically calculated as a percentage of the total loan amount. For instance, if the cost of a business venture is INR 1 crore and the margin requirement is 20%, the borrower would need to contribute INR 20 lakh from their own resources.
Factors Considered by Lenders When Assessing Margin Money
Lenders assess margin money in light of several factors:
Credit History:
A strong credit history might result in lower margin money requirements.
Financial Statements:
Lenders look at your financial documents, such as Profit & Loss account and Balance Sheet, to gauge your repayment capacity.
Resources for Business Loan Consideration
Several resources, including financial advisers, tax consultants, and online platforms, can guide businesses about margin money requirements.
Conclusion
Understanding margin money can be a critical factor in determining your business loan’s total cost. Businesses should do their research and possibly consult with a professional to grasp the impact of margin money on their business loan.
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Key Takeaways
Margin money is a critical factor that affects the total cost of a business loan. The requirement of margin money can vary depending on the type of business loan. Credit history and financial statements can influence the requirement of margin money. Consulting with a professional can help businesses understand margin money requirements better.
FAQs
What is margin money in a business loan?
Margin money is the borrower’s contribution to the total cost of the business venture.
Does the requirement of margin money vary for different types of business loans?
Yes, the requirement of margin money can vary depending on the type of business loan.
What resources can help me understand margin money requirements?
Financial advisers, tax consultants, and online resources can help you understand margin money requirements.
