How to Get A Loan On Commercial Property? A Complete Guide

A Loan Against Property can open doors to several opportunities. You can easily chase your aspirations by leveraging the value of your commercial property with a loan against commercial property.  

Commercial properties can be classified into two broad types. They are office space and retail outlets. These two classes can be further divided into two categories - ready for possession and under construction. When it comes to funding against a commercial property that is under construction, it is often risky for lenders if the buyers are “investors” and not end-users. Read on to learn more about a loan against commercial property, the difference between residential and commercial property, and the important aspects of this loan.

How Does a Loan On Commercial Property Work?

A loan against commercial property is a type of mortgage loan secured through a commercial property. You get money for covering all kinds of business expenses based on the market value of your commercial real estate. It could be business expansion, launching a new product, or debt consolidation. You can get this loan by meeting the simple mortgage eligibility criteria and submitting the required documents.

Difference Between Residential and Commercial Property Financing

Here’s what makes a loan against commercial property different from a loan against residential property financing:

Factors	Loan Against Residential Property	Loan Against Commercial Property
Purpose	You can take this loan for personal purposes like travelling, medical emergencies, education, weddings, etc	A loan against commercial property can be utilized for several business needs like investing in machinery, buying stock, etc.
LTV-Ratio	For residential financing, it ranges between 75% and 90%.	For commercial purchases, the financing percentage is limited to 55%.
Interest Rates	The interest rates are lower as compared commercial financing.	The interest rates are higher than of a loan against residential property.
Repayment Tenure	A loan against residential property usually has a repayment tenure of up to 15 – 20 years.	Commercial financing usually has a loan repayment tenure of up to 10 years.
Income Eligibility	Whether you qualify for the loan or not depends on your income.	Your qualification for the loan depends on the income your commercial property generates.
Tax Benefits	You can’t claim tax benefits if the loan is taken for personal purposes.	You can claim tax benefits under section 24 for a loan against commercial property for your business.

 

Also Read: 5 Things To Know Before Applying For A Loan Against Property

Important Aspects of a Loan On Commercial Property

The important aspect of a loan against commercial property are:

1. Loan to Value (LTV) Ratio

The LTV ratio shows the proportion of the amount of asset value as a comparison to the remaining mortgage balance amount. You can use a loan-to-value calculator to check the LTV ratio. The LTV ratio calculation mainly helps lenders assess the loan's potential risk. The financing percentage for a commercial property mortgage loan is limited to 55%. This ratio may vary depending on numerous factors like property type, lender’s policies, creditworthiness of the borrower, etc.

2. Higher Fees

For commercial property mortgage loans, the processing fee is 1% of the loan amount. Some lenders reduce it to as low as 0.5% if they like your profile as well as the property.

3. High ROI

In a loan against commercial property, the interest rates are at least 1-2% higher than residential ones and they can be 4-5% higher if financial documents exhibit less strength. However, NBFCs like Poonawalla Fincorp offer a Loan Against Property (commercial and residential) at competitive interest rates.

4. Technical Appraisal

The building must comply with all reasonable technical specifications. Whether it is shafts, elevators, escalators, fire extinguishers, emergency exits, double ladders, etc. The lender’s authorized technical appraisal team will verify every detail. It is not that residential property is not thoroughly verified, but there are more aspects to inspecting commercial properties.

5. Obtaining All Statutory Approvals

The builder must get all approvals like an approved plan, clearance from various departments like fire, forest, etc. There should be no demolition risk on the property due to any pending approvals.

6. Minimum Area

In India, the commercial area is measured in square feet. In retail outlets, there are small spaces called 'vanilla' where bank ATMs are usually made. These can be smaller than 100 square feet. The lender can refuse to fund any space if it is 250 square feet or less. Different lenders will have different policies in this matter, so it is best to double-check with your loan advisor.

Also Read: 5 Things To Know Before Applying For A Loan Against Property

Benefits of a Commercial Property Loan

You can avail of the following benefits for a loan against commercial property:

• High Loan Amount:

Secure a high loan amount with a loan against commercial property. You can take this loan for fulfilling multiple business purposes such as purchasing inventory, meeting working capital requirements, scaling up business operations, etc.

• Competitive Interest Rates:

Several lending institutions like Poonawalla Fincorp provide a loan against commercial property at competitive interest rates, making the debt affordable.

• Flexible Repayment Tenure:

You can get a loan against commercial property with a repayment tenure that suits your financial comfort.

• Minimal Document Requirements:

Taking a commercial property mortgage loan is now easier with its online application. You can easily apply for this loan from the comfort of your home.

• Tax Benefits:

You can claim tax benefits for a loan against your commercial property taken for business purposes.

Also Read: Advantages of Loan Against Property  

How to Qualify for a Commercial Property Mortgage Loan?

Following are some tips to qualify for a mortgage loan on commercial property:

• Improve Your Credit Score:

Your credit or CIBIL score plays a vital role in loan approval. You must always try to improve your credit score to get a loan at favourable terms. Paying off debt obligations, making timely payments, and checking your credit report regularly can help improve your credit score.

• Meet Eligibility Requirements:

Every lender has different eligibility requirements regarding age, income, citizenship, etc. You must meet those requirements to get a loan.

• Submit the Required Documents:

Provide the required documents for a loan against commercial property. The common documents include KYC documents (Aadhaar Card, PAN Card), income proof, address proof, etc.

How to Apply for a Loan on Commercial Property

Here are the simple and easy steps to apply for a loan against commercial property:

• Step 1: Click on the ‘Apply Now’ button.
• Step 2: Fill in the required details on the loan application form.
• Step 3: Upload necessary documents.

On successful verification, the loan amount will be transferred to your bank account.

To Conclude

Obtaining a loan against commercial property enables you to realize your property’s potential. It can provide you with the required financial assistance to fulfil your multiple business needs. You can secure high funds for ordering inventory, fulfilling working capital requirements, launching new products, or scaling business operations. Several NBFCs, such as Poonawalla Fincorp, provide a Loan Against Property (both residential and commercial) with competitive interest rates, flexible repayment tenure, zero hidden charges and fast approvals. Before that, you must review the terms and conditions and meet the eligibility criteria for the same.

Disclaimer

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.
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