Loan Application Amidst Higher Interest
The rise in Overnight Policy Rate (OPR) have a negative impact on companies applying for business loan. Below are some illustration how sme business loan application may be affected.
- Deterrence. Business owners may find the interest rate too high making it unprofitable or too risky to take a loan.
- Higher Cost. To the extent your business is dependent on credit, your costs are likely to go up as you will need to pay higher installment. Banks will take this into consideration when you are applying for more loans.
- Reduced Profits. Your profit will be reduce if your business is not able to pass the increase cost over to your customers. Since inflation rate is expected to increase over the coming years due to impending implementation of GST and the hike in fuel prices, increasing the price of your products or services may not be viable. This may negatively impact your ability to apply for loans.
- Reduced Loan Eligibility. The increase in interest rate means that your loan eligibility will decrease. This is because the loan eligibility computation takes into consideration the interest rate. When interest goes up, the maximum loan eligible goes down.
- Stricter Guidelines. Increased interest rate may result in higher cost and lower profitability and hence higher rate of default or Non Performing Loan (NPL). This will force banks to follow stricter guidelines when approving loans.
July 11, 2014 / /