A soft loan is simply a loan with an interest rate below market interest rates. This is also called soft financing. In some cases, soft loans offer financial concessions to certain borrowers, including interest holidays or extended repayment periods. Soft loans are typically offered by government agencies for projects that they feel are worthwhile.
When a bank loans money to someone who doesn’t have collateral and who intends to repay the loan on a timely basis, the bank is making a hard loan. That is, the bank is giving up some of its profit in return for the ability to secure repayment. this aritcle is what the term hard loan is meant to imply. If a bank takes a hard loan for an asset that is not worth as much as the loan amount, it makes a profit. The difference between the amount of the loan and the value of the asset is the profit. If the bank took a hard loan for an equal amount of the market value and the amount repaid over time, the bank would make a soft loan.
The major difference between a soft loan and a hard loan lies in the interest rates and the repayment periods. With a soft loan, the interest rate is often well below the market rate. This is to ensure that the bank will be able to recoup its investment in the long term. For instance, a bank may require the repayment of a part of the loan at a rate far below the prevailing market interest rate in order to earn a profit. On the other hand, a hard loan imposes severely restrictive terms on the borrower’s ability to repay.
Developing countries make up the greatest volume of soft loan recipients. A large number of these people receive these loans from the Chinese government. China has a lot of experience with constructing infrastructure. China’s state-owned construction companies are very experienced at building roads, bridges, airports, and buildings. Their track record and commitment to low cost and quick delivery attract foreign investors to partner with these companies in order to receive low cost finance.
Another significant aspect of soft loans is that they are targeted at low and middle income groups. In contrast, most loans required high per capita income levels. In addition, most such loans involve the use of personal assets as collateral. In contrast, a large majority of developing countries rely on hard cash reserves in order to obtain needed funds.
One other unique aspect of soft loans is that they can be extended to even troubled developing nations. In the past, when developing nations needed a quick infusion of capital for specific purposes, they could access commercial banks and obtain hard loans. Now, instead of depending on banks, these developing nations can access capital from other private sources. The key difference is that while developing nations need a hard loan now and not in the future, they will need such a loan now if their currency loses value, as it inevitably will.
With today’s global lending market, most companies now require soft loan applications. This is because many companies are experiencing difficulty in securing traditional loans at attractive interest rates. Soft loan approval is often dependent on companies satisfying one or more of the following criteria: low capitalization, long history of paying back loans, and good credit to boot. In order to secure approval, the lending company may also request additional documentation.
In summary, anyone looking to get money from anywhere in the world can get money through soft loans. They are especially helpful to individuals with bad credit who don’t have access to traditional banks, though they aren’t necessarily the best option for those wishing to get money from overseas. They may also help those with poor credit histories to repair their score and improve their chances of getting approved for traditional loans. For many, however, soft loans are a convenient way to get money wherever they want. The key is to make sure you read all of the fine print.