A top up loan could one of the smartest financial moves for a businessman. It is efficient both in terms of duration and interest cost. However, many people are not aware of the top up loan and often end up taking a business loan with a higher interest rate. And the difference in the percentage at which the loan is availed can make a big difference in the overall cost of the loan.
What is Top Up Loan?
also read: how to refinance a business loan?
The meaning of top-up loan is an addition of loan (amount) to an already existing loan. If a businessman already has a running loan for business and he is repaying it on time, he can avail this type of loan. Notably, a top-up loan can only be availed by the same lender and by agreeing to his terms and conditions.
Are you Eligible for Top-up Loan?
also read: what are the tax benefits of business loan?
Any businessman is eligible for this business loan if he is already running on a loan from the same lender. However, he should be in the process of repaying the loan and the loan repayment tenure must be 12 months or more. Also, the businessman must have at least paid 6 EMIs successfully. Significantly, if the loan repayment tenure is between 18 and 24 months, the businessman will be eligible for a this loan only after paying 9 successful EMIs.
What are the Benefits of Top-up Loan?
The funds availed under this type of loan can be used for any business purpose. While the earlier type of business loan can only be used for the specific activity for which it is availed, such as machinery loan, working capital loan, capital loan, and flexi loan, this type of loan can be used for any business-related activity.
This type of loan is offered at a lower interest rate and processing fee. Thus, the businessman will have to pay lower repayment cost.
Since the loan lender is already having your documents, there is no need to provide the documents again. All the businessman has to do is update some documents. For instance, he will have to submit his updated bank statements that will reflect he is repaying the ongoing business loan on time.
Also known as an easy-approval benefit, these loans are easily approved. The loan lender will not have to perform the verification process again and he can use the previous documents for this.
By refinancing the previous loan, the repayment tenure for loan increases. However, this would vary from one lender to another. While some lenders offer theses loans only for the outstanding period, some offer an additional repayment tenure for it.
The top-up loan tax benefits include low-income tax returns. Since the interest cost incurred on the business loan is termed as an expense, there are income tax benefits on loans.