Commercial Property Loan in India – All You Need to Know
Your commercial property can fetch you a sizable amount as credit in case you need funds. It can serve as collateral for you to avail a commercial property loan. Find out more about this credit option by reading this blog.
What is a Commercial Property Loan?
A commercial property loan is a financial product that allows you to get funds by offering commercial property owned by you as collateral. It is an excellent way to get a sizable amount of capital when you expand business operations or purchase new equipment.
In general, you can avail a loan amount of up to 60-70% of your property value. This credit option also comes with lucrative interest rates and no end-use restrictions. The application process is fast and hassle-free. Furthermore, some lenders provide customised loan solutions to fulfil the unique needs of each business.
Eligibility Criteria for a Loan Against Commercial Property
This financial product is available for self-employed individuals. They can be classified as follows:
|Self-employed Professional (SEP)||Lawyers, Doctors, Chartered Accountants, Architects, Company Secretaries, Consultants, etc.|
|Self-employed Non-professional (SENP)||Contractors, Commission Agents, Traders, Manufacturers etc.|
The eligibility criteria to obtain a loan against commercial property will vary among loan providers. However, below are mentioned some of the common ones:
|Age||25 years (minimum) to 70 (at the time of loan maturity)|
|Income||The applicant must have a reliable source of income; it must demonstrate this by submitting pertinent income documentation, some lenders don’t require the documented income they assess the business and fund.|
Therefore, you and the co-applicant (if any) must ensure that these conditions are satisfied before applying for the loan.
Documents Required for a Commercial Property Loan
Similar to the eligibility criteria, the documents required to apply for a loan against commercial property will vary among lenders. Thus, it would help if you noted them before starting the application process.
Some of the general ones are listed in the table below:
|Proof of Address and Identity||KYC documents – Passport, Aadhaar card, Voter ID, PAN card, driver’s licence or any other such document issued by the government|
|Income Proof||Savings and Current account statements, CA-attested copies of ITRs, computation of personal and business income, balance sheets and P&L statements for the last three years|
|Property Documents||All relevant documents related to your commercial property, like photocopies of the allotment letter, buyer agreement, title deeds, and previous chain of documents (in case of resale)|
|Other Essential Documents||Passport-sized photos of applicants and co-applicants (if any), cheques for the loan provider to debit processing fees, business profile, partnership deed, etc.|
Things to Consider Before Getting a Commercial Property Loan
Here are some points that you should keep in mind before availing a loan against commercial property:
Before you opt for a commercial property loan, you must first consider locating your preferred loan provider. Many banks and financial institutions offer loans against commercial property, and they usually offer different types of offerings. So, you need to compare the options from all the lenders and choose one that fits you best.
Property Value, Age and Area
You must consider the property’s valuation and age before applying for a loan against the commercial property because the property value will decide the final loan principal, and lenders generally consider the lowest valuation reported by independent property agents.
If the property is of a significant age, needs a sanctioned development plan, etc., loan providers may feel sceptical about accepting it as collateral. Moreover, you should also measure the area that you plan to mortgage.
The Loan to Value or LTV ratio is the percentage of property value that the lender will sanction as the loan amount. For instance, if the LTV ratio of your lender is 65%, you can avail a loan equal to that percentage of your offered property value.
Additionally, this percentage tends to vary among loan providers. Thus, you need to select a provider that offers an LTV ratio which matches your requirements.
The next thing you must consider is the loan principal. It is advisable to confine yourself to the required loan amount rather than going overboard as it will result in greater EMIs and more interest payment.
Another factor of significant importance to consider is the interest rate as this will determine the total interest you have to pay on the loan amount. Moreover, this rate tends to differ among lenders. Thus, you should choose a lender who provides reasonable interest rates.
Each lender charges processing fees for their financial services. Thus, before applying for the loan, you need to consider this fee. Furthermore, you should also ask the lender if there are any fees for prepaying or foreclosing the loan. These charges tend to vary among lenders, and thus you should make your choice accordingly.
Tenure and EMI
The loan tenure is another important thing that you must consider. If you opt for a shorter period, the total interest paid will be less. However, it will increase the EMI amount. If you opt for a longer tenure, the EMI amount will reduce, but the total interest paid will be on the higher end.
In addition, you should assess your monthly spending capacity while determining the EMI amount. Doing so allows you to choose a sum you can easily pay every month without fail throughout the loan tenure while not creating an additional burden on your finances.
If the loan amount is used for business purposes, you can claim tax exemption on the loan amount. In such circumstances, benefits can be claimed against the interest paid as well as the related fees and charges. Section 37(1) of the Income Tax Act of 1961 allows for the deduction of certain payables as business expenses.
How to Apply for a Loan Against Commercial Property?
You can follow the steps given below to apply for a commercial property loan online:
Step 1: Navigate to your preferred loan provider’s website
Step 2: Go to the loan application section
Step 3: Enter the necessary details as prompted.
Step 4: Submit your application.
Once your application process is complete, a representative from the lender’s end will contact you to process and approve your loan application, you can also apply offline by visiting the bank or agent.
Availing a commercial property loan can be an excellent way to get credit and fulfil financial requirements of your business.
Frequently Asked Questions (FAQs)
Is an insurance policy necessary for availing a loan against commercial property?
The RBI (Reserve Bank of India) or IRDA (Insurance Regulatory and Development Authority of India) has not made it mandatory for you to purchase an insurance policy to get a commercial property loan. However, as a general practice, lenders may ask for life or property insurance before sanctioning the loan.
What is the loan tenure for a commercial mortgage loan?
Commercial mortgage loan tenures can generally range from less than 5 years to a maximum of 20 years. However, this period varies among lenders.
How can I calculate my commercial loan against property EMI?
You can also use an online commercial loan EMI calculator.
What is the approval time for a commercial loan against property?
Loan against commercial property approval process generally takes about 1 to 4 weeks. However, please note that this period varies among different lenders.