On the other hand, after the application for the loan has been submitted and accepted by the private commercial banking authorities to whom the loan was applied from the borrowers would be able to lend a significant portion of money income in cash which can be utilized by the borrower for expenses like building a factory, constructing a land which can further be used for residential purpose and finally the borrower can also use the money to construct an organized workspace. Whatever functions are performed by the gold loan are aimed towards economic betterment and bring about improvement in the position of equilibrium between the borrower and the lending authority. Following are some of the important ways in which the gold loans help in maximizing a country's economic potential and bringing about organizational growth and development.
Providing capital for establishing business ventures- One of the biggest ways in which the gold loan provide relief to the borrowers is through the system of provisioning gold loans, the fund generated from which can further be utilized for establishing a business setup and determining the course of action of a business venture. Suppose a borrower is interested to start in the restaurant and eateries sector by establishing a restaurant of his own. But the prospective business owner does not possess the requisite amount of capital that would be required in obtaining the certifications associated with the starting of the business venture and the land allotment fund that could have been utilized efficiently by the borrower.
Thus the borrower goes to the private commercial banking authorities and asks for a loan of about 20,00,000 by keeping a certain percentage of the gold jewelry and ornaments that he possessed as collateral security and gets the equivalent amount of money in cash. Thus the borrower agrees to the repayment terms by signing and ratifying the contractual agreement, whereby he receives the cash amount that he can use to start a new business venture which if run properly would generate significant profit and he would be able to pay off the existing share of liabilities.
Reduction in Total Debt Liability- Another important function performed by the loan facilities that are granted to the borrower includes the facility of reducing the total debt burden for the borrower. For example- Borrower A has a liability existing of 10,00,000 to the State Bank of India. Thus he uses the gold he possesses as a form of collateral security and keeps it with the requisite bank from where he is taking the loan and then uses the cash amount provided to him to liquidate his existing liability and thus is successful in paying off the required loan amount and is encouraged to take more loans.
Conclusion: Thus Gold Loans function as a viable instrument of leveraging financial growth in the economy thereby bringing about economic prosperity. If you have any query about gold loan drop down your concern in the comment section.
