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To help your business level up its game in today's competitive market, you have two financing options – a Loan Against Property or a Business Loan. Choosing between these two can be confusing. Read on to know the differences between a Loan Against Property and a Business Loan.
Loan Against Property is a type of credit facility that allows you to borrow funds to fulfil any financial requirement. To avail of this loan, you may leverage a property you own, like land, house, warehouse or industrial equipment, as collateral. Take a look at the following reasons that make a Loan Against Property a better choice while deciding between a Loan Against Property and a Business Loan.
A Business Loan is an unsecured loan that can be availed to meet any financial requirements related to business. You do not need to pledge any collateral for this loan. All you need to do is enter your basic details and information regarding your business to avail of the Business Loan.
You can avail of a Business Loan to expand your business by buying commercial spaces to set up shops, brand outlets, and manufacturing units or for buying tools and machinery. Considering the differences between a Loan Against Property and a Business Loan, the former is a secured loan, while a Business Loan is unsecured.
However, you can opt for anyone between a Loan Against Property or a Business Loan to fulfil your business growth goal. To choose the right loan type, you need to consider factors like interest rates, loan amount required and other repayment terms of each loan.
Also Read - Different Types of Mortgage Loans in India
The points below will take you through the major points highlighting the differences between a Loan Against Property and a Business Loan.
1. Loan Amount
A Loan Against Property is a secured loan. This makes it evident that the loan is granted against the property you are pledging as collateral. As such the loan amount and interest rate depends on the property's value.
However, in the case of a Business Loan, which is an unsecured loan, you will not be pledging any collateral. In this situation, lenders will take your credit score, income source and business turnover into consideration to decide the loan terms. Usually, lenders tend to sanction a comparatively lower loan for a Business Loan compared to a Loan Against Property.
2. Lower Interest Rate
As a secured loan, where you are pledging a property as collateral to avail of a Loan Against Property for your desired loan amount. However, lenders sanction Business Loan solely considering your credit history and credit score. Therefore, lenders can charge comparatively lower interest rates for Loan Against Property than for Business Loan. This makes the interest rate an important point of difference between a Loan Against Property and a Business Loan.
3. Flexibility to Use Funds
Many individuals assume that both a Business Loan and a Loan Against Property provide flexibility in use. You have complete freedom to use the borrowed amount. However, the assertion is not completely true.
When you take out a Business Loan, the lenders offer flexibility but only in the context of business expenses. You cannot use the funds to meet your personal expenses. However, this is not the case with a Loan Against Property. Here, you can utilise the funds to meet both business and personal expenses.
4. Repayment Tenure
Lenders sanction loan amounts for a specific repayment period (tenure) after considering your credit history and repayment capacity. In the case of a Business Loan, the tenure is usually short. Thus, your EMI can be higher. On the contrary, the repayment tenure for Loan Against Property is more flexible and more extended tenure. Thus, by choosing Loan Against Property, you can repay your debt with a smaller EMI for a longer time. Thus, the advantage of a Loan Against Property over a Business Loan is that the former is manageable for your finances.
Also Read - Common Myths about Loan Against Property
To avail of a Business Loan, your company must be in operation for at least two years from its registration date. However, you can avail of a Loan Against Property to give you the financial support to expand your business. Now that you know the noteworthy differences between a Loan Against Property and a Business Loan, you can decide which option works better for you. Remember to compare different lenders and check their terms before you apply.
1. What are the advantages of a Loan Against Property?
One of the notable advantages of Loan Against Property is that lenders sanction higher amounts for comparatively lower interest rates. You can also enjoy potential tax benefits, longer repayment tenure and any financial requirement.
2. Can I avail Business Loan to start a business?
To avail of a Business Loan from Poonawalla Fincorp, your company must be in operation for at least two years from its registration date.
3. Do I need to pledge collateral to avail small Business Loan?
No, to avail a Business Loan for your small business from Poonawalla Fincorp, you do not need to pledge any collateral.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan Against Property disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.
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