Published On: Tue, Feb 25th, 2020

How Business Can Be Established By Availing Loan Against Property?

One needs capital to start a new business. You may not have enough money or liquidity for your business. The most common and popular means of raising funds for business is either to borrow from friends and relatives or to avail loan. Various kinds of loans, such as business loan, personal loans, gold loan, loan against property, etc., are available with lenders like banks and NBFCs. Most of the entrepreneurs like to opt for borrowing against their property.

Loan Against Property 

We all know that loan against property (LAP) is a secured loan where you have to provide collateral to secure the loan. The financial institutions would generally allocate 50% to 90% of the market value of the property as a loan. LAP is an attractive loan option because of the below-mentioned reasons:

  • The rate of interest in the loan against property is considerably lower than other investments. You can find out the interest on using LAP EMI calculator. 
  • Loan Against Property comes with an extended repayment period as compared to other loans. 
  • Financial institutions offering business loans are reluctant in financing new business and startups without security, active business proposal and a fair share of the entrepreneur in the venture. The loan against property comes without these constraints and hence, is an option that can help you raise the capital amount for your business.

Availing a Loan Against Property for Business:

To avail, loan against property is a lengthy process. The lender takes time to check the property, evaluate it, and do the necessary documentation before approving the loan. 

 The Loan Amount: 

The maximum loan amount you may get from loan against property depends upon two factors.

  • The Value of the Property – the lenders, approves 50% to 90% of the value of the property as the loan amount. 
  • The Repayment Capacity – the lender will emphasize your repayment capacity before deciding the loan amount. You will have to prepare an active business proposal and plan for the generation of revenues to convince the lender of your repayment capacity.

The Loan Type

The loan against property comes in two variants:

  • Term Loan – the lender deposits entire loan amount to your savings or current account. Your repayment starts from the next month. 
  • Overdraft – The lender sanctions a credit limit to you, from which you can withdraw for your business establishment. You have to pay interest only for the amount that you use. You have to submit your annual financial statements to the lender. 
  • The Repayment Tenure – You can have repayment tenure over up to 20 years. It is in the form of monthly EMIs (Equated Monthly Instalments). 

Points to Consider before getting LAP for Business 

There are various points which you should consider before availing a loan against property for business. These are:

  • Size of the company: the funds that you can raise through loan against property should be sufficient for your business. If not so, you will have to think of other means of increasing the additional funds. 
  • Loan against property eligibility: lenders accept commercial, industrial or residential properties to give loan against property. 
  • Value of collateral: You will not receive more than 60% to 65% of the value of the property as the loan amount. 
  • Size of the loan: loan against property is a viable option if your requirements for funds are significant.

The option of availing loan against property is very lucrative when you have some asset or property that you can use to generate funds to establish your business. Must check the EMI with loan against property EMI calculator online. Your property will be safe with the lender and will come back to you on the full repayment of the loan amount. As the lender has your property as security, this loan comes with a lower interest rate.

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