Business owners face constant pressure to meet working capital needs and seize growth opportunities. A Loan Against Property meets these demands by allowing owners to use their property as security for funds. This option provides quick access to capital at a lower cost than unsecured loans.
Reputed lending institutions like Godrej Capital offer a Loan Against Property at competitive interest rates due to the loan’s secured nature. Owners retain ownership of the property while raising funds for expansion.
Understanding Loan Against Property (LAP)
A Loan Against Property (LAP) is a secured mortgage loan in which an individual pledges real estate as collateral to a lending institution. In exchange, the lender extends a loan amount based on the market value of the property. The borrower retains ownership rights and may utilise the property as they normally would. The funds derived from a Loan Against Property can be used for a variety of business purposes, including expansion initiatives, working capital management, debt consolidation and financing significant personal milestones.
Basic Requirements and Eligibility
To be eligible for a Loan Against Property, you generally need to meet the following criteria:
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Property Ownership: You must be the legal owner of the property being mortgaged.
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Clear Title: The property should have a clear, marketable title, free of any legal disputes.
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Income Stability: Lenders look for a steady source of income to ensure you can make timely EMI payments. This applies to both salaried individuals and self-employed business owners.
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Credit Score: A good credit score improves your chances of loan approval and may help you get better interest rates.
Loan tenures for LAPs are typically long. This allows for smaller monthly EMIs, making repayment more manageable.
Advantages of LAP for Businesses
Businesses are turning to LAP for several clear reasons.
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Lower Interest Rates: Due to the secured nature of Loan Against Property (LAPs), lenders encounter a diminished risk profile. Consequently, this results in competitive interest rates for Loans Against Property, particularly when compared to unsecured alternatives such as personal loans or certain business loans.
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Higher Loan Amounts: The loan amount is directly correlated with the assessed value of the property. Lenders can provide a high Loan-to-Value (LTV) ratio, contingent on the type of property and the profile of the borrower. As a result, borrowers may secure a loan of up to ₹15 Crore, an amount that may not be achievable through other financing methods.
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Flexible Usage: LAP funds can be employed for a variety of purposes. Whether there is a need to invest in new machinery, expand operations to a different location or manage cash flow, a LAP offers the flexibility to support these applications.
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Longer Repayment Tenure: LAPs typically offer extended repayment periods of up to 25 years. This prolonged tenure effectively reduces the monthly Equated Monthly Instalment (EMI) burden, thereby allowing borrowers to allocate more capital toward other business priorities.
Factors to Consider Before Opting for LAP
Before you apply for a LAP, it is important to consider a few key factors:
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Property Valuation: The loan amount you receive depends heavily on the market value of your property. An accurate valuation is essential.
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Repayment Capacity: Honestly assess the cash flow of your business and your ability to meet the monthly EMI obligations. Defaulting on a secured loan can lead to the loss of your property.
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Loan-to-Value (LTV) Ratio: LTV is the percentage of the value of a property that a lender provides as a loan. A higher LTV means a larger loan amount. Lending institutions like Godrej Capital offer an LTV of up to 85%, subject to policy.
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Legal and Technical Aspects: Ensure your property documents are in order and the title is clear. Any legal issues can delay or derail your loan application.
How to Apply for a Loan Against Property
The application process is simple. Here is a step-by-step guide:
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Check Eligibility: Use online calculators or contact lenders to check your eligibility.
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Gather Documents: Prepare the necessary documents. This typically includes:
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KYC Documents: Proof of identity and address (e.g., Aadhaar card, PAN card).
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Property Documents: Title deed, sale agreement and other property-related papers.
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Income Documents: Salary slips and bank statements for salaried applicants; audited financials and bank statements for self-employed individuals.
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Submit Application: Complete the application form and submit it, along with the required documents.
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Property Verification: The lender will conduct a legal and technical verification of your property to assess its value.
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Loan Approval & Disbursal: Once verification is complete and the lender is satisfied, the loan is approved and the funds are disbursed to your account.