The three pillars of production are land, labour and capital. SMEs and MSMEs need a regular infusion of capital to sustain themselves in the market. As an entrepreneur, you can look for a loan against your property from financial institutions to meet your fund requirement. Read on to know more to know about its benefits for your SME and MSME.
If you are a small-business owner, you would understand that business needs a regular infusion of capital to sustain and grow. Several SMEs (Small and Medium Enterprises) and MSMEs (Micro Small and Medium Enterprises) rely on an unsecured business loan to get the necessary funds for expansion and for emergency needs. However, business loans usually come up with a lofty interest rate, and often industrialists struggle to repay the amount.
So, what could be the best alternative to business loans for SMEs and MSMEs to get the desired funds? As a business owner, if you are looking for funds but are not willing to pay such an outrageous sum and exploring alternative ways, we have got you covered- introducing Loan Against Property or Home Equity Loan.
What is Loan Against Property?
Multiple housing finance companies such as IIFL Home Loans offer LAP-Loan Against Property. For a beginner, LAP can be easily understood as a Secured Business Loan. It allows borrowers to avail cash-out funds against pre-owned residential or commercial property.
Depending on the type of property, the lenders provide a percentage of property value as a loan. The term is profoundly called as "LTV-Loan to Value" ratio. Financial Institutions usually extend up to 50%-60% of the property value as a loan.
The interest rates are usually lower than the normal market rates as lenders have a right to auction the property mortgaged in case of default. There are miscellaneous other advantages associated with the product. We have tried listing a few of them below:
Benefits of LAP for SMEs and MSMEs
No restriction on end usage of the loan:
One of the most vital benefits of availing a LAP is the freedom with the end usage of the funds. One can use it to pay employees' salaries, purchase business machinery, open a new branch, pay off the business dues and a lot more.
Affordable interest rates and easy documentation:
One of the critical factors that every borrower considers while applying for a loan is the interest rate and EMI. Heavy EMI burden often leads an individual into a debt trap.
LAP interest rates are substantially lower than business loans. This allows you to repay the amount easily without compromising on your usual business expenses.
Also, compared to business loans, when you apply for LAP, you need not have to go through cumbersome paperwork. Most lenders have minimal documentation, and you can easily get your loan sanctioned.
Long repayment tenure
Lenders usually offer LAP for a period of 15 long years, unlike business loans.
The longer the tenure, the smaller will be the EMI. Repayment of a small amount would not hamper the liquidity of the individual. This gives you sufficient time to repay the loan. If your business makes a significant profit during the loan tenure, you can consider prepaying the amount and paying off the full amount faster.
Quick access to funds during an emergency
In business, an emergency may occur anytime, and you may need access to funds immediately. For example, you may need new machinery to amp up the production, or you may sense a new opportunity to expand your business. In such a situation, applying for a LAP can help get the funds quickly; most lenders have a quick online approval and sanction process.
To summarize, LAP benefits SMEs and MSMEs in numerous ways. Apply for a LAP at IIFL Home Loans, which is offered in the form of a Secured Business Loan that enables you to meet your business's financial needs and gear up to take it to the next level.