Your business may experience a financial setback at any point. It always turns up unannounced at the wrong time. Whether you are looking for the expansion of your business or buying new machinery or setting up infrastructure, it is already understood that the funding required for this can be substantial. Now taking a personal loan is an option, but it comes with exponentially higher interest rates, and the fact that it is unsecured makes it undesirable for a business owner.
But this doesn’t mean that business should be deprived of the growth and development it deserves. This is where you can consider taking a loan against property. Yes, you can take a loan against your commercial property and fund your business needs.
The majority of banks and lenders in India offer LAP against commercial properties. However, before you get all excited and get one, there are some considerations about LAP that you need to look into.
This post will discuss the most important aspects of a LAP for commercial property that every loan aspirant must know.
Let’s jump right into it.
Commercial Property Evaluation
First things first, it is important that the commercial property against which you are taking the loan belongs to you. You will have to evaluate your property’s true value to determine the loan amount you can get. Since LAP is provided against collateral, your commercial property will act as collateral. While the lender will come with an in-house expert for property evaluation, it is better that you also perform a thorough evaluation so that you can know what to expect. Now, the lender will only lend you 60-70% of the property’s total value as a loan amount. This can range anywhere from ₹3-₹5 crores.
Ownership of the Commercial Property
You will have to keep all the paperwork and documentation in hand that shows you are the property’s true owner. The lender will only approve the LAP after it is convinced that your commercial property has a clear and marketable title. On the other hand, if there are partners or co-owners, they have to be part of the loan to meet the criteria. So, keep all the paperwork and documentation related to the property ready. The lender may also conduct some background checks as well. So, you have to be prepared for that as well.
Loan Tenure and Repayment
You will have to fulfill the required income criteria to repay LAP. The best part is that you can repay your loan against commercial property over a period of 1 year to up to 20 years. Nevertheless, the repayment period varies from lender to lender. If you take up a higher tenure, the easier will be the EMIs because of the loan against property lowest interest rate. Again, your EMIs will depend on the loan amount you have taken.
The lender will review any ongoing loans, repayment history, and income statements, among other things, to evaluate your repayment capacity.
A loan against commercial property can offer your business flexibility and accessibility to surplus funding for expansion.