How to Borrow Within Limits?

“Those who consider the unessential to be essential, and see the essential as unessential, don’t reach the essential, living in the field of the wrong intention.” — Buddha

A simple method of understanding how much pressure borrowing will place on your finances is by understanding how much of your income would you have to pay as loans every month.

Use this formula:

Quick Tip

1/4th of your salary – it is a comfortable loan

Quick Tip

1/3rd – we should be prepared for budget cuts in our monthly expenses

Quick Tip

1/2– the loan will take up a significant part of our daily lives until it is paid back

Quick Tip

More than 1/2 of your salary– It is bad debt that will make your life difficult to manage

Pro Tip

It is advisable to be prepared before borrowing any amount. It is a good practice to look for any subsidy plan you could be eligible for that might reduce your burden of borrowing.

Hema visits Jaya’s house to learn about repaying her debt. She has brought her monthly budget along with her. They both are at the snack corner of the town for a cup of morning tea.

Let’s listen to their conversation

There’s another lady calling their name at the tea centre. Hema and Jaya look at each other.

Jaya and Hema look at Sushma who seems pretty stressed.

Jaya smiles and welcomes Sushma to join them

The 3 C’s of Borrowing are-

Credit-worthiness

Capacity

Character

How capable one is to return the loan based on past performance, the business idea, and credit score

Does the person have the capacity to carry out the business

Whether you have a loan with 2-3 lenders

Sujata and Hema both felt that it was good advice

Next time you visit the bank, keep the parameters for borrowing money in mind:

	Project– what is your project? why is it important?
	Marketability– The ability of the product to sustain in the market and work well with market conditions.
	Product Rate
	Profitability
	Accounting
	Experience
	Inputs

To track your progress