Handbook

BUSINESS FINANCING

Business financing refers to funds that have been made available by businesses to satisfy their needs, such as starting a company, getting additional funds to finance business operations, obtaining funding to buy capital for the company or dealing with a sudden cash crunch that the company is confronted with. There are different sources of finance such as corporate loans, private equity, etc. The Nepalese Government has released a procedure relating to seed capital grant to innovation, 2018 (2076) procedure to grant loans to entrepreneurs with innovation knowledge, skill and capacity. In the table below, the terms of the loan under this plan are emphasized.

The Nepalese Government has released a procedure relating to seed capital grant to innovation, 2018 (2076) procedure to grant loans to entrepreneurs with innovation knowledge, skill and capacity.

In the table below, the terms of the loan under this plan are emphasized.

SN Entitlement Conditions of Loan
1 Eligibility Businesses inventing, innovating or operating business of goods or service through new knowledge, skill, and capacity
2 Operation Area In the fields of Industry, Agriculture, Energy, Health, Tourism, Education, Information Technology and others.
3 Interest Rate 2 % through the commercial bank specified by committee.
4 Security
  • Guarantee of the borrower
  • Security over the action plan
  • Agreement between the borrower and ministry of industry, commerce and supply, and the project
5 Threshold of Loan Amount The working procedure stipulates that a maximum loan of Rs 50 lakh be issued, with no more than 50% of the total cost of the firm being covered.
6 Maturity Period Within one year of the previous installment, repayment begins.
7 Required Conditions and Documents
  • PAN and Business Registration
  • Letter certified by Credit Information Bureau that the respective business is not blacklisted in the CIB
  • Other prescribed conditions and documents.

Process of Receiving Loans

SN Entitlement
1 Identifying the sources of Business loan
  • Business Loan: Term loan , Overdraft, Letter of Credit, Guarantees, Equipment loans
  • Private Equity Investment: fixed investment horizon ranging from 4 to 7 years
  • Two types of partners : a. Limited partners - who own 99 percent of shares in a fund
    b. General Partners- who own 1 percent of share and have full liability Note: Private Equity Investors in Nepal are; Global Equity Fund , Hathaway Investment Nepal and Dolma Impact Fund
  • Venture Capital: provide fund to small and starts-up firms which have high growth potential.
  • Finding an Angel Investor: Individual Investor who provides a small amount of capital and it can be yours Friends and Families, Crowd Funding, Groups, Wealthy Individuals and so on. In general, they look for a return of around 25 to 60 percent.
  • Accessing Challenge Funds: A competitive financing facility to disburse donor funding for projects typically utilizing public sector or private foundation funds for market-based or incentive-driven solutions.
  • External Commercial Borrowing: borrow loan from foreign entity such as foreign banks and financial institution, parent company / group of companies, foreign relatives, non-resident Nepali, etc.
  • Inter-Company Borrowing: borrow a loan from other company , loan cannot be more than; a. an amount that is 60% of its paid-up capital and free reserves b. an amount to be set by 10% of its free reserves
  • Some of the bank also take initiatives to provide funding for new business with or without collateral ( Global small Business loans, NMB’S Microfinance, Himalayan Bank’s SME Loans
2 Eligibility Banks consider factors such as the
  • Age of the loan applicant
  • Nationality
  • Income and
  • Turnover to evaluate the ability to repay the loan.
3 Required Documents
  • An Application Form
  • Valid proof of Applicant’s Identity E.g. Citizenship/ Passport/Driving license
  • Passport size photographs of the applicant
  • Loan request details (How much amount is needed/ How the money will be used/ Loan Period)
  • Audited Financial Documents (Balance Sheet, Income Statements)
  • Business Legal documents( PAN Registration Certificate)
  • Tax Returns(Personal and Business)
  • Business Plan
  • ank declarations(Issued by the customer’s bank stating their account number and balance and other required information)
4 Interest Rate (Base Rate)
FY Shrawan Bhadra Aswin Kartik Mangsir
2077/78 7.01 6.83 6.81 6.70 6.38
2076/77 8.27 8.24 7.84 7.84 8.09
5 Priority Sectors NRB priority sectors - Agriculture, Energy, Micro, Cottage, Small and Medium Industries and Tourism for Commercial Banks, Development Banks and Financial Company Micro Finance priority sectors - Agriculture