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Business Loan Against Property: What to Consider While Applying? Research Team | Posted On Tuesday, May 07,2019, 12:40 PM

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Business Loan Against Property: What to Consider While Applying?



Funding is an important aspect for operating businesses. Funding is not an easy process. Most of the business funding needs are resolved through seeking loans from commercial banks and financial institutions. If you are looking for hassle-free and easy loans, business loans against property can be a good option. LAP can be availed for short-term as well as long term investment needs.

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Business Loan Against Property: What to Consider While Applying

What is Business Loan Against Property?

As the name suggests, it is a business loan customized to finance business ventures. Business loan involves mortgaging property and accessing funds to fuel businesses. The loan can be availed by pledging both commercial as well as residential property.

Features of LAP:

  • Easy Documentation: Documentation is comparatively simple when it comes to LAP as eligibility criteria are limited. The eligibility is mainly evaluated based on the market value of the property, repayment capacity, income, business model and so on.
  • Hassle Free Loan Disbursal: The simple eligibility criteria and easy documentation helps in quick disbursal of loans.
  • Flexible Repayment Options: Loan repayment tenure is more flexible in case of LAP. The repayment tenure ranges from 10 to 15 years. You can choose to repay the loan before the tenure, without paying additional prepayment charges. Most of the banks allow prepayment of business loans against property without any charges.
  • Collateral: The property offered as collateral to the bank can be a piece of land, residential house or commercial building.

SEE ALSO: What is Meant by a Loan Against property?

Eligibility Conditions:

Loan against property can be availed by salaried employees, businessmen and self-employed professionals. The eligibility criteria of business loan against property are as follows:

  • The applicant must be between 25 to 55 years of age.
  • A salaried person employed in a company can also avail business loan against property.
  • The amount of loan applied for must not exceed the value of the property.
  • The business must be in existence for a minimum of 3 years.

Documents Required for the Business:

Business loan against property is an ideal solution for small and medium enterprises, SMEs, looking for quick loans as they provide multiple benefits that are specially aligned to the needs of the business owners. Listed below are the documents that must be submitted by the applicant:

  • KYC documents.
  • Address proof: Aadhaar card, Passport, Driving license.
  • Financial documents related to the property: Electricity bill, property documents, sale deed.
  • Photo ID card: Aadhaar card, Passport sized photograph, Pan Card or Voter ID card.
  • Income proof for salaried individuals: Previous 3 month’s salary slip, Employee Certificate, Job Appointment Letter and experience letter, last one-year bank statement.
  • Income proof for businessmen: Income tax returns. Registration certificate of the business.

Things to Consider Before Applying for a Business Loan Against Property:

There are few important aspects that you must consider before applying for loan against property. They are as follows:

Compare Interest Rates:

The interest rates on secured business loans range from 12% to 14% a year. It is always advisable to check interest rates offered by banks. Look for favorable terms and conditions like flexible repayment options and online account management, before choosing the bank. You can also get expert advice from financial advisors for loans at moderate rates.

Check Loan to Value (LTV) Ratio:

Generally, the property that is offered as security helps get a loan that is 60-80% of the market value of the property. Commercial property fetches lower LTV ratio, but again this depends on the bank and factors like, is the property rented or self-occupied.

Already Mortgaged Property:

Loan against property can also be availed by pledging an already mortgaged property. It is one of the benefits of business loan against property. You can avail a loan by using a property on which you have a home loan outstanding.

No Prepayment Charges:

There are no prepayment charges for loans availed by mortgaging property. The loan can be repaid in full before the tenure of the loan.

SEE ALSO: Loan Against Property Interest Rates

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