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Loans Against Commercial Property: Your Comprehensive Guide

By IIFL Home Loans | Published On Aug 07 2023 10:43 AM 2 min read 83 views 579 Likes
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IIFL Home Loans

Are you a business owner needing financial support to fuel your growth plans or address unforeseen expenses? If you own a commercial property, you have a valuable asset that can help you secure a loan. The funds obtained can be used for various purposes, such as business expansion, purchasing expensive machinery, or even for a new shop. Now you can either seek a loan for a commercial shop by pledging your existing property as collateral or by directly applying for a property loan for its purchase. At IIFL Home Loans, you get multiple options to explore and pick from.

Let us first understand what a loan against your commercial property means and how you can leverage your property to obtain the funds you need.

Understanding Loan Against Commercial Property

A loan against commercial property is a type of mortgage loan that allows business owners to borrow funds using their commercial property as collateral. This means that instead of relying on personal assets or creditworthiness, the loan is secured by the market value of the commercial real estate. 

Here is how to properly leverage your property:

How to Get A Loan on Commercial Property?

When you are seeking a loan against your commercial property, there are several key steps to follow:

Step 1: Assess the value of your property

Evaluate the market value of your commercial property. Consider factors such as location, size, condition, and potential income it generates. This valuation will determine the loan amount you can potentially secure.

Step 2: Research and select a suitable lender

Research different financial institutions or lenders who offer loans against commercial property. Compare interest rates, loan terms, repayment options, customer reviews, etc. IIFL Home Loans offer secure optimum funding for your business

Step 3: Submit a loan application & Documents

Complete the loan application form and submit it along with the required documents such as property ownership documents, ID proof, address proof, property tax receipts, and financial statements of the business. Necessary collateral documentation may include a mortgage deed or an equitable mortgage agreement. 

Step 4: Await evaluation and approval

The lender will review your application and evaluate the commercial property's value and potential. This assessment will determine your eligibility and the loan amount you qualify for. 

Upon approval, the lender will finalise the loan agreement and disburse the funds. Review the terms and conditions of the loan agreement carefully before signing it. 

Step 5: Repayment and property release

Adhere to the agreed-upon repayment schedule and ensure timely payment of EMIs (Equated Monthly Installments). Once the loan is fully repaid, the lender will release the mortgage on your commercial property.

Now say that you do not have a commercial property, but have an excellent business idea for which you need office space. In such cases, you can directly apply for a traditional property loan.

Here is how to get a property loan for your business:

  1. Determine your eligibility based on your income, credit score, and the value/location of the commercial property you intend to purchase.

  2. Fill out the loan application form from the lender's website. 

  3. Prepare the required documents to support your loan application.

  4. Await your lender's review and approval.

  5. Sign the loan agreement to have your funds disbursed. 

Here is a quick comparison between a loan to purchase commercial property and using a property as collateral for a loan.

Loan for Buying Commercial Property Vs. Loan Against Commercial Property

Factors

Loan to purchase commercial property

Loan against commercial property

Purpose

Designed to finance the acquisition of a commercial property, allowing you to become a property owner.

Uses the value of an existing commercial property you own to obtain funds for business purposes, without necessarily involving property acquisition.

Loan Amount

Usually based on the purchase price/market value of the chosen property.

Determined by the market value of the property you already own.

Repayment

The EMIs (Equated Monthly Installments) generally start once the property is acquired.

The EMIs start immediately after loan disbursement.

To Sum Up!

Lenders will conduct their due diligence to make sure everything is in order. They will conduct a legal verification to ensure the property has a clear title and no encumbrances. Be cautious while reviewing the loan terms, including the interest rate, repayment period, and associated fees. Seek clarification on any points you don't understand.

Read more on IIFL Home Loans or reach out to experts for specific requirements and terms for obtaining flexible options to help you.

FAQs

1. Can I get a home loan for commercial property?

Yes, but lenders may have specific criteria for financing commercial properties. The property's usage, compliance with regulations, and potential for revenue generation will be closely evaluated. Additionally, the loan-to-value (LTV) ratio for commercial property loans is typically lower than for residential property loans. 

2. What is a secured business loan against commercial property?

A secured business loan is a type of loan that requires the borrower to provide collateral or security to the lender. The collateral can be assets such as property, equipment, inventory, or accounts receivable. By offering collateral, the borrower reduces the lender's risk, often leading to more favourable loan terms.

3. Who can apply for a secured business loan at IIFL Home Loans?

  • Any Indian Resident

  • Anyone in the age bracket of 18 years to 75 years

  • Anyone requiring a loan amount of Rs. 2 Lakhs to Rs. 10 Crore

  • Any salaried or self-employed individual

  • Credit score typically above 650

4. What is the maximum loan term and the repayment term?

The maximum loan term is 10 years. The repayment term at IIFL Home Loans is flexible and depends on the value of your mortgaged property.

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