Turnover means how much you earn throughout the year. These earnings are not calculated only on the basis of money but also on the other assets of the business. Other than the building, equipment and the fixtures installed in the premises there are certain other assets that a business owns and must be disposed or replaced on a regular basis. This ongoing procedure or the cycle is known as turnover. In general, the term is always used in terms of accounts receivables and inventories. It is important to track the rate of turnover of such assets because a large sum of money is involved. The slow turnover not only increases the cost but also require a good amount of working capital for the smooth functioning that in turn reduces the profitability of the firm.
Borrowing a home loan for a self employed professional and self employed non professional is a difficult task and entail a long procedure. Banks/ NBFC’s who sells the Home Loan products are always more suspicious while approving home loan to businessmen, CA’s, lawyers, doctors etc. However, the process is not difficult but it’s too time consuming and involves a long trail of documentation because of the income stability and status.
Therefore, the possibility if borrowing a loan increases when you are particular about paying your taxes on time, repaying your current running loans, keeping all your documents and records in order, keep your books and maintain a good credit score etc. if you think that you fit on all the standard set of mentioned requirements, you can always ask your Bank/ NBFC to perceive your eligible home loan amount depending on your gross turnover.
Every Bank/ NBFC has a pre-assigned industry margin that decides the segment of self-employed home loan. It is used as a multiplier to calculate the turnover and decide the eligible income. Let’s read further from the experts of Mudra Home to know more about the eligibility calculation.
- Income from the business can also be involved to calculate the home loan eligible amount.
- Only a registered business is perceived along with three years (2 in few cases) of strong financials.
- Other income sources such as rental or interest can also be added to increase the home loan amount while calculating the eligibility.
- To increase the home loan eligibility, self employed people can also add on the income from enterprises such as companies, partnerships and owned proprieties.
- Depreciation (also known as no-cash expense) can also e added with the net income of the business to decide the home loan amount.
Turnover refers to a specific period in which the business collects the cash from accounts receivables or how fast the company sells its inventories. According to the audited financials to calculate the turnover there are certain financial benchmarks which are as follows:
- Upwards trend in turnover
- Net Cash as profits (net cash received after deducting all expenses)
- Materialistic Net Worth (after deducting all liabilities from the total assets and concrete assets like goodwill, patents etc). It gives the clear picture of the net worth.
The essentials for Banking and inspection of business, collateral and assets
- Business premises and other property visits are mandatory for the inspection
- If necessary, the business premises can be visited even after the sanctioning / disbursement of the loan.
- To calculate the turnover a minimum of 12 months bank statement is required.
- The loan officer will analyze the banking habits in detail.
- Turnover is calculated depending on the net sales of the business (less or more than 1Cr. depending on the lender).
- A fixed percentage of net sales is calculated by every lender (15% – 20% depending on the lender).
- Profit Before Depreciation and Interest and Taxes (PBDIT) is also calculated by every lender.
- Depending on the lender, the multiplier for turnover calculation is considered ‘n’ times of ascertained PBDIT by every lender.
- Home loan eligibility is considered as the lower of any one of the two values computed i.e. the fixed percentage of the turnover or the ‘n’ time of PBDIT by using the fixed multiplier of the Bank/ NBFC.
LTV (LOAN – TO – VALUE) UNDER TURNOVER SCHEME
LTV for Home loans is restricted up to 75% of the market value of the property. But, depending on the case it may be exceeded up to 80% (the percentage may vary from lender to lender).