All You Need to Know About Commercial Property Loan

A Commercial Property Loan means borrowing funds against your commercial property. It is an affordable means of getting funds for meeting various financial obligations. Since you are offering your property as collateral against the loan, there is no restriction on how you use the loan amount. That makes it an attractive proposition for the borrowers. For example, you may even use a Commercial Property Loan to fund your child’s higher education, wedding, or any other personal expense. Depending on your circumstances and age; you may enjoy a repayment tenure of up to 15 years on your Commercial Property Loan. 

Features of Loan Against Commercial Property

 Collateral 
The basic requirement to avail of a Commercial Property Loan is that you must have a commercial property. It could be a commercial premise, shop, manufacturing unit, or office. The criteria would vary from lender to lender. The commercial property you own will be mortgaged to get the loan. Your commercial property is collateral, against which you get a loan. 
 
Loan to Value (LTV) 
Loan to value (LTV) refers to the amount of loan you can get against your commercial property. Compared to residential properties, the LTV of commercial properties is much lower. Generally, your Property Mortgage Loan would be 60% to 75% of the property value. For example, if the property value of your commercial premise is ?3 crores, you can avail of a ?1.50 crore to ?2.10 crore loan, depending on the lender and your repayment capabilities. Most lenders have an online calculator for calculating LTV. It will help you determine the probable loan amount you can get. 
 
Repayment tenure 
The repayment tenure is up to 15 years. It would again depend on several factors such as: 

• Your source of income 
• Income and repayment capability 
• Age of the borrower 
• Occupation?(Salaried/self-employed)  ? 

Interest rate 
Since a Loan Against Commercial Property is a secured loan, the interest rates are lower compared to a Personal Loan, Education loan, and the like. The interest received would depend on various factors such as -? 

• Loan tenure 
• Your age and occupation 
• Credit Score 
• Age of the property  

Eligibility criteria to avail of Loan Against Commercial Property

You must fulfill the following criteria to be eligible for a Commercial Property Loan: 

• Must be an Indian citizen
• Own a commercial property with a clear title and free of legal hassles 
• The property must be fully insured? 
• Credit score should be 750 
• Have a steady income source 
• Fall within the age criteria of 25 years to 65 years 
• Number of years in business or service as per the lender’s specification 

Documents needed to get a Commercial Property Loan

• Identity & Address proof (PAN Card/Driving license/Passport/Voter id) 
• Income Proof (Bank Statements/Income Tax Returns) 
• Commercial property agreement 
• Other documentary evidence as demanded by the lender 

Also Read :- How to get a loan against commercial property? 

Things to consider to select a lender for Property Mortgage Loan

All the major lending institutions would offer the Loan Against Property on similar terms, yet not all lenders are the same. You need to carefully consider the loan terms before finalizing the lender.? Here’s are few important points that you must consider while choosing a lender for Loan Against Commercial Property:
 
Rate of interest 
This is paramount when considering a Commercial Property Loan or any other loan. Even a marginal difference in the interest rate can make a huge difference to the total outgo. Therefore, do some math, and compare the interest rate offered by various financial institutions before finalizing the lender. 
 
Loan amount 
While all the lending institutions follow RBI guidelines including the upper limit for lending against commercial property, the actual property assessment is done by the lender. So, it is quite likely that lenders will differ on two counts: 
1.    Property valuation 
2.    Loan to value (LTV) 
The LTV ratio ranges from 50% to 70%, depending on the lender’s policy and your financial position. The higher the LTV ratio of a lender, the more the loan amount you will get. Therefore, one needs to go with a lender with a higher LTV.? 
 
Pre-payment penalty 
Some financial institutions may charge a penalty for pre-payment of loans. Generally, borrowers may repay the loan amount in advance to save interest charges for the balance of loan tenure. However, in that case, you must consider the prepayment penalty as it will add to your overall cost. 
 
Other charges 
You would be required to pay certain charges, broadly termed as processing fees. It would include registration fees, legal expenses, brokerage, loan assessment charges, and the like. This would increase your cost burden. The processing fee would be in the range of 1% to 2% of the loan amount. Specifically, ask your lender as to what you would be required to pay over and above the interest charges. Also, go through the fine print before you sign on thos dotted lines.  

How to apply for Property Mortgage Loan?

Applying for a Loan Against Commercial Property is easy. You may either visit the nearest branch of the bank or financial institution or apply online. 

• Here are the steps how your Loan Against Property will be processed: 
• Fill up the loan application form online/offline 
• Confirm your details on verification by the lender 
• Furnish all the required documents 
• On verification of the documents, you will receive a loan sanction letter if you are eligible for the loan 
• Next, the lender will conduct in-depth property verification. This is to ensure the property is not involved in any legal value and to ascertain its true value. 
• If the lender is satisfied with the property details, they will go ahead and disburse the funds to your account.  

In conclusion

 Applying for a Loan Against Property is a massive undertaking since you will be capitalizing on your property for the loan. Hence, finding the best lender is of utmost importance.  Now that you know all about Property Mortgage loans, go ahead and find a reputed lending institution that offers Loan Against Property on extremely favourable terms.