How is the small business making use of Gold Loan?

Gold Loan

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Small businesses mostly use a gold loan as short term working capital for their business. It helps to tackle finance requirements for running their business. With the COVID- 19 pandemic, the economic state and working environment for business have experienced a drastic transformation. A lot of businesses are struggling to revive their business in this new normal, and others have been completely shut down.

In such a scenario, small businesses including traders, manufacturers, shopkeepers, vendors and self-employed individuals which comprises carpenters, electricians etc. need finance to manage their everyday life. Taking a loan such a personal loan, a home loan is also not an option because neither do the banks have sufficient cash to provide to the borrowers nor do the borrowers have income sources and stability to meet the loan eligibility for such loans.  The best part is that people can fetch a low gold loan interest rate on gold jewel. 

So what comes rescue in these circumstances is a gold loan. Taking a gold loan is an ideal choice, and small businesses are utilising the full potential of the idle gold lying in their homes. Before understanding about how markets are using gold loans, let’s know a bit about why gold loans can be a preferred choice for borrowing.

  1. The prices of gold have been sharply increasing, and presently they are hovering at around Rs 47000 per 10 gm. Thus, the borrowers can get more loan amounts with the same gold.Gold Loan lends 75% at LTV whereas You can also avail Cash for Gold which would be 99% around the actual value
  2. Secondly, with gold lying unutilised and income sources being negligible, it is easy to avail a gold loan. It is because you neither require to submit Income proofs nor do you need to have a good CIBIL score to get a gold loan.
  3. Financial institutions are launching special gold loan schemes for borrowers. Some banks are offering gold loans at a lower rate of interest than usual gold loan rates. Others are resorting to flexible methods of evaluation of gold value.
  4. The most significant transformation in the gold loan market is the availability of gold loans at your doorsteps. The process of applying for a gold loan to sanctioning of gold loans in your bank accounts, the entire process is digital.
  5. Finally, there is the enormous potential of gold assets as they are lying idle with Indian households, especially in parts of Northern India.

Understanding the relationship between small businesses and gold loans:

It is an undeniable fact that small businesses are the largest consumers of gold loans. VP Nandakumar, MD of Manappuram Finance, said he is very optimistic about the potential of gold loans. He said that they are expecting a growth of about 15% in demand for gold loans. Further, he emphasised that small businesses are potentially the highest consumers of gold loans. Other financial institutions have also expressed the same sentiment. 

George Alexander Muthoot, who is the managing director of Muthoot Finance, says “They will take gold loans for bridge financing to restart their operations. Due to the lockdown, payments have not come to small businesses, shopkeepers and traders. So they will need money, for which they will pledge their gold for taking loans. Nearly 75% of our customers are small shopkeepers, traders and small businesses.”

Thus, with the income sources drying and people requiring funds to manage their everyday life, gold loans come with considerable potential to borrow funds. However, before taking a gold loan, it is always crucial to evaluate the credit ratings of lending institutions to prevent yourselves from any default. Also, do not forget to compare the interest rates and other charges of different institutions.

Summary:How is the small business making use of Gold Loan?

Small businesses mostly use a gold loan as short term working capital for their business. It helps to tackle finance requirements for running their business. With the COVID- 19 pandemic, a lot of businesses are struggling to revive their business in this new normal, and others have been completely shut down.

Read more; Moving to the UK? Here is How an NRE Account Can Help

In such a scenario, small businesses including traders, manufacturers, shopkeepers, vendors and self-employed individuals which comprises carpenters, electricians etc. need finance to manage their everyday life. Taking a loan such a personal loan, a home loan is also not an option because neither do the banks have sufficient cash to provide to the borrowers nor do the borrowers have income sources and stability to meet the loan eligibility for such loans. 

So what comes rescue in these circumstances is a gold loan. Taking a gold loan is an ideal choice, and small businesses are utilising the full potential of the idle gold lying in their homes. The prices of gold have been sharply increasing, and presently they are hovering at around Rs 47000 per 10 gm. Thus, the borrowers can get more loan amounts with the same gold. Also it is easy to avail a gold loan. It is because you neither require to submit Income proofs nor do you need to have a good CIBIL score to get a gold loan.

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