An Entrepreneur’s guide to Bank Loans in Nepal
This article is the first in the 3 step bank loan guide for entrepreneurs in Nepal: by the end of
the series, you will have the knowledge you need to proceed towards getting a loan and using it
to start or grow your business. For the purposes of this series of articles, we will use 7 Class
‘A’ banks in Nepal as case studies, on the basis of which we will discuss our plan of action.
Nepal has plenty of banks offering similar loan policies--it can sometimes be difficult to decide
which of these is perfect for your business. Today, we will look at 7 questions you should ask
yourself and your business partners that will give you a general direction of what type of loan
you should be taking. The loan options that are given here as examples are simply some of the
many policies available, therefore, if you feel like the particular policy doesn’t match your
needs, you can always find a similar option somewhere else.
Before we start with the questions, we will first explain the Interest Rate format used in this
article: for example (BR + 0.5 to 5.00%). BR, here, means the Base Rate of the loans: the
starting or minimum amount of interest rate of the bank. Each bank has a different Base Rate,
and Nepal Rastra Bank stipulates that each bank must release base rates on a 3-month basis and
can thus only change it once every three months. Base Rates can be found on the bank websites or
through a phone call to the bank. It is important to consider the base rates as some banks have
rates of over 10% while others may have much lower rates. The +0.5 to 5.00% is an example of the
range of premium that is added to the base rate on every loan and is different for different
loan programs. Thus, the (BR + 0.5 to 5.00%) represents the total interest rate of the loan
1.What is the size of your business?
One way to measure the size of your business is the amount of capital
that you need to survive: if you need more capital, it means that you
have a larger business. According to the size of your business then, you
will get an idea of the amount of money you need to successfully run or
grow your business. The amount of money you need affects the loan
program you should apply for. Different banks offer different maximum
and minimum loan amounts with each range having different interest
rates. The way to proceed then is to find the perfect range of loans and
then, look for the best deal on this range.
For example, Himalayan Bank Limited has a “Small Personal Business Loan”
as well as a “Small and Medium Enterprise Loan” in which the Small
Personal Business Loan has a maximum of NRS. 50 lakhs (5 Million) that
can be taken as a term loan, while the SME Loan allows for a maximum of
6 crores to be taken out. Both loans can have different interest rates,
and therefore it is important to know what range fits your needs the
2.What type of business are you starting/ growing?
The type of business you are starting will impact the loan program you
opt into; businesses can be broadly defined as service businesses and
goods based business. For goods-based business, one way to further
divide is by the types of goods that you are selling. This is useful to
know because depending on the type of business, you could find options
that are particular to you and get a differentiated program (with lower
If we take the example of agriculture-based businesses in Nepal, we can
see plenty of differentiated loan options that have much lower rates.
Bank of Kathmandu’s Agriculture Business Loan may be a great option for
agriculture-based businesses as you can get loans of up to NRS 1 crore
(for multiple business owners) that has a lower interest rate (BR +
minimum 0.5%) instead of the usual Small Enterprise Loan that has a
minimum interest rate of (BR + 1%). Therefore, it is important to
distinguish what type of business you’re requesting a loan for, and
possibly find a specific loan program.
3.Are you exporting/ importing goods?
The important question you have to ask is whether you are selling goods
to customers within Nepal, or outside Nepal.
If you are exporting goods,
you might be able to get a loan for Export Finance: Sunrise Bank offers
the Export Finance Loan for financing the needs of exporters (including
shipment loans, document negotiation etc).
They offer this loan at (BR +
up to 6%) for both corporate and non-corporate applicants. Similarly,
Nabil bank also offers its own loan scheme for Exporters and Importers,
focusing on financing and facilitating overseas trade relationships. The
loan is offered at a rate of (BR + 3.25-5.50%) for Multinationals and
Prime (high-quality) applicants while for others the rate is much higher
(BR + 4.75 - 6.50%).
Therefore, knowing which banks have customized
Import/export policies and which one best suits your needs can be a huge
4.What is your selling platform?
With a lot of businesses today using online platforms to sell their goods/
services, there are more options to receive funding for business ideas.
loans are still an option, a lot of businesses today (especially tech-based
businesses) have a potential for investment from Venture Capitalists, Impact
Funds or Angel Investors. In Nepal today, there is a lot of potentials for
high-quality start-ups to get funded through individual investors or investment
groups, located heavily in the cities.
If you have a start-up that requires
funding from investors, be sure to reach out to us as we have the platform to
connect you to these investors.
5.What is your and your fellow business owners’ background?
The background of the business owners is a key point of consideration when it
comes to the loan program that you should accept. By background here, we are
referring to identity: your place of origin, place of residence, gender,
economic background, age, and experience. Each of these identity metrics can
potentially add value to your loan application.
For example, if your place of residence is in a Deprived Sector (as
by Nepal Rastra Bank), or even if your work is aimed at these areas, referred to
as deprived yet emerging sectors, there will be advantages to you in your loan
application process. This is because 5% of every Commercial Bank’s lending has
to be allocated towards Development Credit Unit (DCU), as made
mandatory by NRB.
Besides the geographical area of work, another key identity metric is gender:
because of the existing societal discrimination that women face daily, a lot of
Development Credit Unit (the 5%) goes to loans for female business people. The
Mahila Udhyamshil Karja is an example of this--enacted by Bank of
this program allows female citizens (aged 18 to 60) to borrow loans of up to 4
lakhs, repaid on a monthly or quarterly basis. The interest rate for this loan
is (BR + 0.50 to 6.00 %). The DCU policy has been enacted by the national
government for the empowerment of socially discriminated individuals, and
therefore individuals with the relevant backgrounds should make full use of
6.How is your business doing/ how do you expect it to do in the
The repayment time/ method is a factor that a lot of loan applicants in Nepal
fail to consider. While your business should already be making some profits
(or on the way there), loan applicants should consider when they will be
making enough profit to pay back the loans. Here, we need to consider the
difference between the two main types of loans: Term Loans and
Term Loans refer to traditional forms of loans, used to finance mostly fixed
assets and these loans have a fixed return period, with repayments normally
happening on a quarterly or a monthly basis. There are also short-term loans
with shorter repayment period (6 months-1 year). These loans are better for
businesses with a definite stream of revenue and businesses that are already
making profits because the term loans can be used to scale up or finance
Overdraft, however, is better for low-range loans, mostly used for funding
everyday expenses. Overdraft loans are taken by individuals with existing
accounts in banks from which they can withdraw money. How Overdraft works
are that even if you run out of money in your account, you can continue
withdrawing money which you will have to pay back at a certain interest
Nepal Investment Bank, for example, provides Overdraft Loans at (BR + 1 to
6.75&) interest rate while it provides Long term Loans at (BR + 1.5 to
6.75%) interest rates. Similarly, it also provides Working Capital Loans (to
finance the working capital requirements of businesspeople) at a lower
interest rate of (BR + 0.75 to 6 %). Therefore, depending on the current and
expected profits, a loan applicant should decide the type of loan and the
repayment time period they are most comfortable with.