Whether you're a business owner looking to expand or an entrepreneur in need of capital, a term loan in Nepal can be an excellent financing solution. Many banks and financial institutions offer term loans for various purposes, from setting up industries to buying property or vehicles.
But how does it all work?
Firstly, I want to advise all the applicants to be attentive throughout the process of loan processing because it seems simple, but it is not. One must go through all the research through different banks and get the best term loan in Nepal at the best possible rates. This blog will help you with the documentation process so that your work will be hassle-free.
What is a Term Loan?
A term loan is a type of financing provided by banks or financial institutions for a specific time period, usually for capital investment, business growth, or large purchases. The loan is repaid in fixed monthly or quarterly installments over the loan tenure.
Types of Term Loans in Nepal
Banks in Nepal offer various types of term loans based on purpose and tenure.
Based on Purpose
- Business Term Loans: For startups and enterprises looking to invest in infrastructure or expand operations.
- Industrial/Project Loans: Suitable for hydropower, tourism, agriculture, and other large-scale projects.
- Mortgage Loans: Secured loans for purchasing residential or commercial property.
- Vehicle Loans: For buying private or commercial vehicles.
- Education Loans: For students pursuing higher education in Nepal or abroad.
- SME and Agriculture Loans: Designed for small businesses and farmers; some are subsidized by the government.
- Hire Purchase Loans: For acquiring machinery, electronics, or industrial equipment on installments.
Based on Tenure
- Short-Term Loans: Repaid within 12 months, ideal for covering urgent or temporary expenses. Interest rates are usually higher.
- Intermediate-Term Loans: Repayment period ranges from 1 to 5 years, used for medium-sized investments.
- Long-Term Loans: Tenure of 5 to 20 years, perfect for business expansion or property acquisition. Collateral is usually required.
Legal Framework for Term Loans in Nepal
When applying for a term loan in Nepal, it's important to understand the legal structure that governs how loans are issued, managed, and recovered. Here’s a quick overview of the main laws that shape the lending process:
1. Nepal Rastra Bank Act, 2002
This act establishes Nepal Rastra Bank (NRB) as the central authority for overseeing the financial sector. NRB sets guidelines for credit control, supervises banks and financial institutions, and monitors overall loan financing practices in Nepal.
2. Bank and Financial Institutions Act, 2006 (BAFIA)
BAFIA is the cornerstone law that regulates all banks and financial institutions in Nepal. It covers credit supply, loan recovery processes, NRB directives, and enforces penalties for non-compliance.
3. Banking Offense and Punishment Act, 2007
This act aims to curb loan misuse and financial fraud. It penalizes actions like submitting fake financial documents or misusing borrowed funds, ensuring ethical borrowing and lending practices.
4. Company Act, 2006
Relevant for business loans, this act governs the registration, operation, and legal obligations of companies in Nepal. Banks refer to this law when evaluating corporate loan applications.
5. Insolvency Act, 2006
If a borrower cannot repay a term loan, this act outlines the legal process for insolvency and debt resolution—protecting both the borrower’s rights and the lender’s interests.
6. Debt Recovery Act, 2001
This law helps banks recover overdue loans by defining the process of debt collection, rights of both lenders and borrowers, and procedures for loan settlements.
7. Negotiable Instruments Act, 1977
Many term loan agreements involve instruments like promissory notes or cheques. This act regulates such documents, making them legally enforceable.
8. Unified Directives of Nepal Rastra Bank
These are detailed instructions issued by NRB that all banks and financial institutions must follow while issuing and managing loans. They align with international banking practices and are updated regularly.
Key Features of Term Loans in Nepal
- Loan Amount: Varies based on need and bank policy.
- Income Source: Steady income is required to ensure timely repayments.
- Collateral: Usually real estate property with updated valuation is required.
- Repayment Period: Can range from a few months to 20 years. EMI-based repayment is common.
- Prepayment Charges: Applicable if you repay the loan before the agreed tenure.
- Service Charge: Each bank has its own fee structure for processing the loan.
- Interest Rates: Typically range from 10% to 15% per annum. Rates may be fixed or floating, based on the base rate set by Nepal Rastra Bank and individual bank policies.
- End-Use Clause: Funds must be used for the purpose specified during application.
How to Apply for a Term Loan in Nepal
Here’s a step-by-step breakdown of the term loan application process:
Step 1: Research & Compare
Visit multiple banks or financial institutions to understand their loan offerings. Compare term loan interest rates in Nepal, fees, and eligibility criteria.
Step 2: Submit Application
Once you've chosen your bank, submit a loan application explaining the purpose and amount needed.
Step 3: Documentation
Submit all required documents, including:
- Citizenship and photos
- Business registration certificates (if applicable)
- Income statements
- Property documents with a valuation report (from a registered valuator)
- Tax clearance documents
- Projected cash flow or business plan (for business loans)
Tip: Submitting complete documents at once speeds up processing. Most banks finalize processing within 7 working days if all paperwork is in order.
Step 4: Legal Formalities
After initial approval, visit the bank to sign legal agreements. Bring:
- Two witnesses
- A guarantor
- Required fees (processing/service charges)
Step 5: Disbursement
Once everything is verified, the loan amount will be disbursed—either in full or in parts—depending on your agreement with the bank.
Even though the steps seem simple, handling everything on your own can get stressful. If you ever feel stuck or need help with the process, the team at eStartup Nepal is here to quietly guide you through—no pressure, just support when you need it.
Eligibility Criteria for Term Loans in Nepal
To qualify for a term loan:
- You must be a Nepalese citizen, 18 years or older.
- You should have a stable and regular income source.
- Businesses must be registered (Private, Public, Partnership, Proprietorship).
- Good credit history and healthy debt-to-income ratio are essential.
- You must clearly specify the purpose of the loan during the application.
Documents Required for Term Loan in Nepal
- Citizenship certificate and passport-sized photos
- Firm Registration Certificate (if applicable)
- PAN/VAT Registration (for business income)
- Property documents and valuation report
- Latest tax clearance certificate
- Salary slips or income verification documents
- Audited financial statements (if business-related)
- MOA/AOA, Partnership Deed (if applicable)
Final Thoughts
Applying for a term loan in Nepal doesn’t have to be overwhelming. With the right preparation, documentation, and knowledge of the process, you can significantly increase your chances of approval and minimize delays.
If you have any questions or need help figuring out the best term loan options for your needs, drop a message—we're here to help you navigate it all.
And if you found this blog useful, consider sharing it on social media with relevant hashtags. You never know who else might benefit from it.