If a property is a non-residential property and is used for commercial purposes, the property can be termed as a commercial property. Owners of such properties either use them for running businesses or rent them out to others for commercial activities. Market valuation of these properties can be very high, especially if they are in big cities of India. If you want to avail of a loan against property for big expenses, you can use your existing property and pledge the property to secure a loan. Mortgaging commercial property comes with many benefits, including non-restricted usage of funds, long tenor, lower interest rate and so on. However, for qualifying for a commercial property loan, you are required to meet the eligibility criteria of lenders.
Availing of a Loan Against Commercial Property
If you own a property, either residential or commercial, you can apply for a loan against your existing property. Usually, loans against property attract lower interest rates. If you are applying for a loan against property, you must know the valuation of your existing property, which determines the loan amount. The loan amount sanctioned will approximately be 60% of the market value of the property you are putting as collateral, depending upon the condition of the property. Some lenders may offer a slightly higher value, so it is always a good idea to shop for good rates. Banks tend to offer a lesser loan amount if a rented out property is used as collateral. If you are the owner of a property that you have rented out, the final loan amount against it can go up to 50% of its valuation.
Eligibility Criteria for Loan Against Property in India
Because of loan against commercial property being a secured loan, the processing of the loan happens quite quickly. However, financial assistance through loan against property is only sanctioned to self-employed individuals. Banks categorise these individuals as self-employed professionals and self-employed non-professionals. Architects, doctors, chartered accountants, consultants and so on are considered self-employed professionals. On the contrary, self-employed non-professionals are contractors, stock market traders etc.
- The foremost requirement for securing a loan against a commercial property is that one must be the legal owner of the commercial property one is pledging as collateral. In case the property is owned by more than one individual, all the owners of the property have to put their signature on the application. A joint application for loan against property can significantly increase the chances of loan approval.
- property loan are only approved for properties located in India. Owners of this property must also be residents of India.
- For availing of a property loan, you must be between the age of 25 and 70 years. Applicant below 25 and above 70 years are not eligible for the loan.
- A satisfactory monthly income is one of the most important requirements for qualifying for a loan against property in India. Banks expect borrowers to earn enough to be able to comfortably manage both the EMIs as well as other monthly expenses.
- Individuals are required to have a good credit score. Depending on the credit score, loan approval is done.
- The condition of the property should be such that lenders can sell it off if the borrower defaults on the loan.
Commercial Property Loan Documentation Process
Because LAP are high-value loans, banks take extra care before approving a loan against property. Individuals applying for the loan are expected to submit the following documents:
- Address proof
- Identity proof
- Residence proof
- Income proof
- Commercial property ownership proof
Lenders may ask for additional documents, as per their requirement and policies. Once the above-mentioned documents are submitted by applicants, they are put to ample scrutiny by lenders. After satisfying themselves, the loan processing is started by the lender.
Rate of Interest for Loan Against Commercial Property
For any loan, the interest rate remains a major concern for borrowers. This becomes even more important if the loan amount is substantially high. Loan against property comes with different interest rate options. Borrowers can choose either floating interest rate or fixed interest rate on the loan. Lenders keep the rate of interest for loan against commercial property on a lower side. Generally, a loan against property interest rate can range from 8% to 10%. Moreover, your credit score can affect the interest rate offered by the loan. If you have got an excellent credit score, some negotiation can be done with the lender for securing some further discount on the interest rate.
Keeping the above-mentioned factors in mind can help you in qualifying for a commercial property loan. Because commercial loan against property is a long-duration loan, a repayment tenor of 15 to 20 years can be available for repaying the loan. This allows borrowers to comfortably pay the EMI. Loan against property calculator can be used by borrowers to plan their repayment in a better way.