Sunday, 6 May 2018

What is a Pre-Approved Home Loan?

Pre-Approved Home Loan (also called as an in-principle approval/sanction of a home loan) is a home loan sanctioned by the bank to its customer/borrower before the borrower has finalized a residential property to buy. The loan amount is decided purely on the basis of borrower's income documents, creditworthiness, repayment capacity and financial position.

The value of the property is not taken into consideration at all (as the same would have not been finalized by the borrower at the time of application for the home loan). The approval is valid for a limited time period (usually 3 to 6 months). The borrower should identify a property within this limited time period. If he is unable to do so, the validity of the sanction letter will lapse and he will be required to submit his latest financial documents.

The disbursement will be done by the bank only if the property has a clear title and is acceptable to the bank as a security (as per their lending norms). For example, if the property finalized by the customer is found to be structurally weak, the bank may not go ahead with the disbursement of the loan.

Also one must keep in mind that the terms of the loan (interest rate, EMI, and tenure) indicated in the sanction letter may change later. For example, if the rate of interest increases after the bank has given an in-principal sanction letter, the borrower will not get the loan at the rate of interest mentioned in the sanction letter (as always rate of interest applicable to the loan is the rate of interest prevailing at the time of disbursement of the loan).

What are the benefits of getting a home loan pre-approved?

1. Once the borrower knows how much loan he is eligible for (based on his income), he will be very clear about his budget. Hence he can focus better on the property search without worrying too much about how he will be able to manage his finances for buying the property. He will not miss out on a good property deal as he will be able to take quick decisions (since he would now have a better picture of his budget and finances).

2. The loan processing will take much less time after the property has been finalized by the borrower (as a lot of loan formalities would have been completed at the time of pre-approval/in-principle sanction of the loan). This will also enable him to make immediate payment to the seller of the property and quickly take the possession of the property (if the property is ready).

3. The borrower will be in a position to negotiate better with sellers. The pre-approval of home loan would increase his bargaining power as he would now have a sanction letter to show to the seller (so that the seller becomes confident about swift payment of the price of the property). The seller may agree to sell the property at a slightly lower rate in such a scenario.

4. Assistance in property search - Sometimes the banks also share with the customers (whose loans have been sanctioned in principle) the list of projects approved by them This would assist the borrower to try to find a deal without the assistance of a broker. Also, if he finalizes a property from that list he can be sure that the property falls within the lending norms of the bank and that title of the property is clear.

Wednesday, 4 April 2018

Types of Economic Activities - Business and its features

Business is an economic activity. Economic activity refers to any activity which is conducted with an intention to earn money.

Business refers to production and distribution of goods and services with an intention to make profits. The production also involves the production of agricultural goods. For example, growing mangoes, manufacturing of soaps etc. Distribution refers to all the activities involved in the movement of goods and services to the ultimate consumer. For example transport, warehousing etc

Following are some of the features or characteristics of Business as an economic activity-

1. Involves Production and Distribution of Goods and Services - Any activity done during the process of making goods and services available to the ultimate consumer for a price will be called as a business.

2. Involves goods and services - Every business transaction involves either goods or services. Services are intangible but are provided for earning money. For example, transport, banking etc.

3. Involves minimum of 2 parties - Any business activity involves a minimum of 2 parties i.e., buyer and seller. One cannot do a business with himself.

4. Involves Exchange - Any business activity involves an exchange of goods and services for money or money's worth. Hence business involves a minimum of 2 parties. Any exchange requires minimum 2 parties. Goods and Services exchanged for money is referred to as a monetary exchange. Exchange of goods or services for some other goods or services is called Barter Exchange. No money is involved in a barter exchange.

5. Aims at a profit - Every business activity has an aim to make a profit. If there is no intention to make a profit, such an activity cannot be considered as business.

6. Risk - Every business involves risk i.e., the risk of making a loss. There is nothing called Risk Free Business.

7. Continuity - Business involves a continuous and regular production of goods and services. Any isolated activity of buying and selling cannot be considered as business. For example, selling off old furniture of your house. Even though it involves money it still can't be considered as a business for you, as you are not doing this on a regular basis.

Related Post - Types of Economic Activities - Employment and its Features

Sunday, 25 February 2018

Types of Demand - Micro Economics

Following are some of the different forms of Demand-

1. Joint Demand - This refers to a kind of demand where products are demanded jointly. For example, Inkpen and ink, car and petrol etc. Such products are demanded jointly. For example, there won't be any demand for ink if ink-pen is not there and vice versa

2. Competitive Demand - This refers to demand of products which are close substitutes of each other. For example, tea and coffee.

3. Derived Demand or Indirect Demand - When the demand of a product is derived from the demand of any other product, such a demand is called derived demand. For example, cement. Cement is demanded not for direct consumption but is demanded as there is demand for housing. Thus cement derives its demand from demand of housing

4. Direct Demand - This refers to demand of products which are directly consumed by people. For example, all consumer electronics. The demand of these products does not depend on the demand of any other product. These products are directly consumed by people. For example, the demand of a washing machine does not depend on the demand of any other product. The washing machine is consumed (used) directly by the people.

5. Composite Demand - This refers to the demand of the products which have multiple uses. For example, electricity, milk etc. These products have multiple usages and can be used for a variety of purposes. For example, electricity is used to run TVs, washing machines, computers, music systems etc.

Wednesday, 21 February 2018

Qualities of a Good Entrepreneur

The personality of the entrepreneur plays a very important role in the success of a business. He is like the captain of the ship. He is one of the four factors of production namely, land, labor, capital and enterprise(entrepreneur)

Following are some of the qualities of a good entrepreneur-

1. Risk Taker- They say  "Fortune favors the brave". The entrepreneur is the true risk bearer of any business. Risk taking is the most important quality of a good entrepreneur. He should be able to take calculated risks. A completely risk-averse person cannot make a successful entrepreneur. Risk taking is the most important function of an entrepreneur. However, he should also not be too adventurous. There have been instances in the where global giants became bankrupt due to excessive risk-taking.

2. Innovator- In today's highly competitive business environment, it is only the innovators who survive and succeed. With the removal of restrictions on international trade, the companies all over the world compete against each other. Continuous innovation is the only road to success in the global economy.

3. Quick Decision Maker- The entrepreneur also should be a quick decision maker. Taking too much time in decision making can lead to loss of good business opportunities which could be costly in today's highly competitive business environment

4. Leader- An entrepreneur also needs to have good leadership skills. He has to lead his team from the front. He should have good listening skills. At the same time, he should be able to make his own decisions. He should be able to provide a sense of direction to his employees. He should be open to suggestions of his employees. He should be capable to keep his employees motivated as employees are the most important asset in today's business. Only the companies with highly motivated employees can succeed in the long run. “Take Care Of Your Employees And They’ll Take Care Of Your Business,” Says Richard Branson, Founder of The Virgin Group

5. Coordinator: Its the job of an entrepreneur to maintain a proper coordination between other factors of production, namely land, labor, and capital. He needs to maintain proper coordination among his team members so that they all can work together for the achievement of a common goal (the goal of the business). A successful business is all about teamwork as business is a team activity. Without proper coordination between various departments, the business cannot succeed

6. Planner - Planning is also a very important function of an entrepreneur. A company without planning is like a ship without a direction. Big businesses cannot operate without proper planning

7. Foresight- An Entrepreneur has to be a person with foresight. He should be able to see what's coming up in his industry. He should be able to spot likely future changes in his business and the economy, such as upcoming technologies, upcoming products etc. He should be pro-active rather than reactive. Otherwise, he may lose first-mover advantage (advantage of being the first company to enter a new product line, new business opportunity etc.

8. Knowledgeable- An entrepreneur cannot be ignorant about his business or the economy. Having a good knowledge base is always an asset, It helps his business to be one step ahead of the competition always. He should have complete knowledge about the business environment in which he operates his business like laws pertaining to his business, best business practices etc.

9. Flexibility- An entrepreneur has to be flexible by nature. If a plan doesn't work he should be flexible enough to make necessary changes to his plan or to follow an alternative plan

10. Good Communicator and Assertive- It is important for an entrepreneur to be a good communicator. Then only he can communicate his vision to employees clearly. An entrepreneur has to spend a lot of time communicating with various stakeholders of the business like the government, suppliers, customers, creditors etc. Hence an entrepreneur needs to have good communication skills. He should also be assertive in his communications and should know when and how to say "No"

Thursday, 8 February 2018

Basic Accounting Terms - 3

Debtors- Debtors refer to people who owe money to the firm on account of goods sold to them on credit. In other words, debtors are customers or purchasers who have purchased the goods from the firm on credit. However, this does not include loans and advances granted by the firm to someone. 

Creditors - A person to whom the firm owes money due to the purchase of goods on credit from them is called as a creditor. So, creditors are the suppliers from whom business may have purchased the goods on credit. The term Creditors does not include any loans and advances taken or availed by the firm. If the business or the firm has taken some loan from the bank, then the bank would not be considered as a creditor of the firm. 

Net Profit/Income - It means an excess of revenues over expenses. The whole of net profit belongs to the owner/s of the business. It is a return for the owner on capital invested in the business and the risk borne by him. 

Net Loss - It is opposite of net profit. Net Loss is an excess of expenses over revenues. 

Drawings - It refers to money or the value of goods which the owner has withdrawn from the business for his personal use. For example, cash withdrawn by the owner from the business for his personal expenses is drawings. 

Transactions - Transaction involves an exchange of goods or services for money or money's worth. For example, purchase of goods, the sale of goods etc. 

Entry - It means the recording of a business transaction in the books of accounts. 

Voucher - It refers to the document which serves as an evidence or the proof of a business transaction. It is a supporting document for making an entry in the books of accounts. 

Discounts - Discounts are of two types - 
(a) Trade Discount. Trade discount means the discount given to the customer/purchaser on the printed price of the product. For example, if the printed price of a particular product is Rs.10,000/- and it is sold for Rs. 8,000/- by the firm, then Rs.2000/- is considered as a trade discount. 
(b) Cash Discount - It means discount offered to someone for making a prompt payment or payment before the date on which the amount is due. It acts as an incentive for the customers/purchasers of the firm to make early payments to the firm