Most of us are thorough planners of our businesses. There are instances, though, when you want to expand your business without affecting your savings. It might be simpler to borrow money from friends and family this time. Stressing them financially would not be a smart idea, though, if the amounts are substantial. A better choice would be to use a resource you already have access to, such as your home, business, or vacant or rented property.
We refer to this as a “Loan Against Property” for business; however, can LAP be the preferred choice when there are so many other credit instruments on the market? Let’s look at a real-world scenario to see how LAP can be the greatest option.
Shakthi, a salaried person, has spent all of his resources, but he still has to pay a hefty hospital bill for his father’s care. His self-employed brother Navin wants to make a significant investment to realize his aspirations for business growth. Both brothers require money to pay for their children’s further education.
Shakthi and Navin both require a sizable sum of money quickly. Indu, a mutual friend, has counseled them to make the most of their resources. Shakthi owns a house where he resides, and Navin has a commercial space from where he conducted his business. They could easily mortgage both properties, and cover their expenses by opting for a LAP.
But Won’t They have to forego their property?
No! using loan against property for business does not prevent you from using the property until the loan is paid in full. Even after taking out a loan against the property, you are still allowed to live there or work there. When you take a LAP, unlike a gold loan, where you must provide the gold to the lender in exchange for the money, the lenders will not take control of your asset.
To ensure that no additional sales occur before the loan is repaid, only the original property documents are still with the lender.
Loan Against Property Eligibility
The applicant’s eligibility is considered by the financial lender when a customer applies for a Loan Against Property. Age, type of employment, income, and property value are a few factors that are considered when determining whether or not an applicant is eligible.
The lender will decide whether to accept or reject the person’s application for a loan against property based on the considerations above. The loan against property eligibility for most lenders is as follows
- Minimum Age limit: 21 years
- Maximum Age limit: 65 years – 70 years
- Employment Status: Salaried or self-employed individual
- Credit Score: CIBIL score of 750 or more
- Repayment Tenure: 15-20 years (Maximum)
Benefits of Loan Against Property for Business
What justifies Shakthi and Navin choosing a LAP? They could decide to take out further loans. Several products are on the market, including personal, business, and loans secured by gold. A LAP is a preferred option among all other loans because of the following factors:
1. Quick and Simple Procedures
When you have an unexpected financial emergency, a prompt loan disbursement becomes essential. The procedure of getting an LAP approved is quite quick and easy. For instance, a borrower looking to receive an LAP from IndusInd Bank can do so within 4 working days of getting the loan approved.
2. Get a lot of money at once.
A property typically has a higher value than other types of assets. A LAP can cover up to 70% of a residential property’s market value and 60% of a commercial property’s market value.
3. Enjoy the benefit of lower interest rates
An essential component of a LAP is a competitive interest rate. Therefore, you can take advantage of it and repay the money in a way that works for your financial situation.
4. Advantage of longer loan tenures and more manageable monthly repayments
The extended repayment period (up to 15 years) offered by LAP eases the burden of EMIs. Most other credit products have concise repayment terms but offer generous payments, low-interest rates, and the freedom to use the money as you see fit.
5. Funds for multiple purposes – without restrictions
Home loans are often only available to purchase residential properties, and specific business loans limit the funds’ use for company-related activities. But there are no limitations on how you can spend the money you borrow through a LAP. In this instance, Shakthi and Naveen can now spend the remaining funds on their businesses while also securing their children’s future.
6. Access to top-up loans
You can get additional financing on top of the current LAP if you’ve already mortgaged your house for a loan and then find yourself with an unexpectedly large bill. You will avoid the inconvenience of making a new loan application.
7. No unforeseen or additional fees
Pre-closure, processing, and other costs are frequently included with loans. In the case of a LAP, such fees are either dropped entirely or significantly reduced.
The Bottom Line
A loan against property for business is a low-cost way to make sure you have money on hand when you need it for your business needs. You pledge your property as collateral for this secured loan. With these loans, you must proceed with the utmost prudence because you are entrusting the lender with your most important asset. Self-employed professionals, businesspeople, and entrepreneurs commonly use LAP for professional purposes. The backing of a property is acceptable to banks and non-banking financial institutions (NBFCs). The loan against property eligibility can differ from lender to lender.