Getting your new business off the ground can be quite challenging. One of the biggest challenges that entrepreneurs face while starting a business is lack of funding. Of course, business loans are an option but business loans are most often extended only to seasoned entrepreneurs.
Another viable option for financing your business is a personal loan. However, the interest rates on personal loans are often quite high which make it a financially unsound financing option. Additionally, personal loan providers also require the borrower to have a relatively higher credit score and favourable credit history.
Another reliable financing option is a loan against property, or LAP. Being a secured loan, an LAP bears a lower rate of interest and is also comparatively easier to obtain. Here are some of the benefits of going for an LAP to fund your business needs:
- Large Loan Amounts
With a loan against property, entrepreneurs can get loans of up to ₹10 Crores. This is a blessing to many entrepreneurs as not a lot of types of loans or schemes offer loans of this quantum. For an entrepreneur looking to cut no corners with their business venture, a loan against property may be an ideal option.
Most lenders will extend a maximum loan of up to 70% of the property’s valuation. So, if your property is high-value, you can get a high-value loan to help grow your business.
- Nominal Interest Rates
Unlike a personal loan or a business loan, a loan against property is a secured loan. Secured loans generally come with lower rates of interest compared to their unsecured counterparts. This is because the chances of a secured loan becoming a bad debt for the lending institution is quite low. In case the borrower does fail to repay the loan, the lender can simply sell off the collateral and realise the remaining amount.
There are a number of lending institutions offering loans against property, it’s crucial that you sift through these options to arrive at one that suits your needs the best. As a general rule, choose a well-reputed lending institution that offers nominal loan against property interest rates, along with favourable terms.
- Flexible Repayment Tenures
Secured loans, particularly when taken in conjunction with a higher loan amount, offer flexible repayment tenures. Many lenders offer repayment tenures of up to 18 years. This makes it easy for borrowers to repay their loan against property without taking on excessive monthly repayment amounts.
- Simple Eligibility Terms
Typically, business loans have complicated eligibility requirements that are directed towards experienced entrepreneurs. This makes it difficult for many aspiring entrepreneurs to access these loans to grow their businesses. If this is the case with you, a loan against property can help you take your business to the next level. Loans against property come with basic eligibility requirements.
You would also be required to submit documents relevant to your property. One point to note is that you wouldn’t be required to vacate the property just because it’s now a collateral for your loan. You and your family can use the property as usual even while it’s pledged as collateral.
The eligibility criteria for a loan against property can differ depending on the lending institution you choose. However, some eligibility criteria that may be similar across board is income, lending institutions will require that the borrower has a steady source of income, whether they are a salaried employee or a self-employed individual.
While we’re on the topic, another point worth noting is that loans against property also require minimal documentation and often, can be applied online. Here are some documents that you would need to get started with your loan against property application:
- Proof of residence
- Proof of identity
- Bank account statements for the past 6 months
- Mortgage documents
Things to Consider Before Taking a Loan Against Property
If a loan against property seems like the appropriate funding option to take your business to new heights, here are some points to consider:
- Credit Score
A good credit score can help you tremendously when it comes to applying for loans. This is because a good credit score signals to lenders that you are a financially disciplined individual. A good credit score can help boost your chances of getting your loans approved. Additionally, having a good credit also gives you some negotiating power which can help you get lower interest rates and better terms.
If your credit score is not as favourable as you’d like for it to be or if you’re just getting started on your credit journey, then consider adding a trusted family member as a co-signer. Ensure that the co-signer has a good credit score, this can help improve your chances of getting your loans approved.
- Shop Around
These days, there are a number of loans against property options available in the market. Different lenders offer different interest rates and terms. This is why you should never settle on the first lender you find. Sift through the options available to you, understand the industry standards and averages and only then make a decision.
Additionally, be clear about what you want. If your priority is to keep costs as low as possible, then find a lender that offers low rates of interest and minimal processing fees. On the other hand, if your priority is to keep monthly payments as low as possible, then go for a lender that offers extended repayment tenures.
- Loan Amount
If you own a high-value property that you are pledging as collateral, then you will be eligible to borrow higher loan amounts. While it might be tempting to take the higher loan amount, you might be better off resisting this urge. It’s important to remember that interest will accrue on your loan amount once it’s disbursed. If you end up borrowing more than you need, you will be paying interest on the excess funds as well, even if you don’t use them.
So, if keeping costs low is a priority for you, then borrow only as much as you need, not as much as you’re eligible for.
In this article, we’ve highlighted the benefits of taking a loan against property to take your business to all-new heights. If a loan against property is the right financing option for you, you can start by browsing the internet to find lending offering loans against property and shortlist the ones that suit your requirements!
