While personal loans are still the popular choice of credit in urgent needs, it is very limited in terms of eligibility because of requiring no collateral. This is more of a reason why loan against property for business is gaining immense popularity these days. This is also the reason why this is one of the most viable choices for businessmen.
Why you should consider Loan against Property for business?
- You have the option of paying lower EMIs compared to personal loans.
- Your loan will be approved more quickly depending on the amount of regular income, past loan history, property value, and tenure.
- You will not have to pay any prepayment charges. In the scenario, when you can afford to pay some amount of the principal amount in one-go.
You’ll be able to do so in most bank’s LAPs, without any extra charge.
- Furthermore, the interest rates are lower than most other types of loans.
Important points to remember about LAP:
- Loan Tenure:
The amount taken by the borrower will have to be repaid within a tenure of 12 months to 20 years. However, this may vary on factors like: specific bank policy, applicant’s credit score, property value, etc. Moreover, as mentioned before, the borrower can pay back the loan earlier than in the tenure amount.
- Property ownership:
The bank/lender will verify and appraise the property before approval of the loan. The borrower will still maintain ownership of the property during the loan tenure and can continue to use it. However, some banks may have a clause that would require the borrower to take permission from the bank, before repairing the property, renting it, any damages done to the property, or before building a structure (in case of land property).
Furthermore, all co-owners must have verifiable confirmation regarding the loan.
- Evaluation of Property:
The evaluation will be done on the basis of factors like condition, location, property type, co-owners, etc. If the loan is approved, the bank will keep the fair market value of the property as the collateral. Not the future value of the property.
Most lenders/banks will offer up to a 60-75% of the property value as the loan amount.
The loan tenure can be much longer than a personal loan with lower interest. Mostly, there are multiple options given by the lender/bank for EMI payment plans.
The bank may also evaluate your business’ income status, previous loan histories to come up with an interest rate and suggested tenure duration for the loan.
Some common misconceptions about Loan against Property for Business:
- LAPs for business can only be availed on commercial properties.
- No, these loans are available for any owned properties, including: house, apartments, rented places, commercial properties, as well as both private and commercial lands.
- High interest rates, because of higher property prices.
- The loan amount and interest rates will be determined on factors like borrower details and property condition. The rates and amount will be fixed with regards to the market value of the property at present.
- The property used as collateral cannot be used.
- The property used as collateral can be used by the property owner/owners as mentioned before.
Loan against Property for Business – Process:
- Applications can be made through the bank, both online and offline.
- The bank representative will contact the applicant for more details as well as submission and verification of documents.
- The bank will verify the documents and information. A representative from the bank will also go to the property site for inspection and evaluation.
- If approved, the bank will then offer a percentage of the property value (at present) as loan amount.
- The applicant will then accept the terms of the loans or may reject the loan offer. Furthermore, the applicant will also finalize the EMI payments plan.