Whether you are a start-up or an established business owner, a loan against property (LAP) is always a viable option to choose if you are willing to expand in the long run. LAP comes with a longer loan tenure, higher loan amount, and lower interest rate than most other loan forms, especially unsecured ones. It also has no limitations on how it can be used. Unlike other loan forms, you do not have to explain to your lender why you are taking out a loan. Despite the numerous advantages, caution should be exercised while selecting a loan against property for business. It is recommended that you follow the tips listed below while selecting a LAP.
Loan Amount:
You should have a clear idea about the loan amount while availing a loan against property for business purposes. It is a good idea to assess your company’s needs, such as how much money you will need for working capital, how much money you will need for machinery and purchases, and so on. With LAP, one can easily obtain a higher loan amount based on the property’s worth, but one must be realistic when stating the desired loan amount.
If your needs are large, yet one lender cannot promise a sufficient LTV (loan to value ratio) on your property, you should hunt for another lender. So, before taking out this loan, figure out how much money you will need and choose a lender accordingly. However, take care to not take more than you need, or else your total burden will shoot up.
Cost of the Loan:
When applying for a LAP, businesses usually consider the interest factor. You might end up comparing loan interest rates from various lenders but forget to assess the costs involved with such borrowing. It is a good idea to inquire about the APR, or Annual Percentage Rate, with the financial institution. The Annual Percentage Rate will include the fees associated with the loan against property for business. you should also find out about penalty charges so that you can properly manage your budget and avoid defaulting on the EMI.
Fund Usage:
Business needs are dynamic just like the business environment. As a business owner, you may require funds for working capital, machinery purchase, setting up of a new office, staff expansion, and so on. The amount of funds needed varies from time to time as well. Sometimes, you may only need a modest amount to maintain liquidity in your business, and at other times, you may need a larger sum because you want to expand your company. Now, though a loan against property for business comes with a high loan amount, there is a fear of losing your property in the event of long-term repayment default. So, if your needs are limited, it is advisable to look for other loan options. However, if you are planning an expansion, LAP is the best choice as it comes with a low interest rate and high loan amount.
Sales Revenue of your Business:
Always keep your company’s sales revenue chart in mind when asking for a loan against a property. The sales income will show the strength of your company and serve as a benchmark for proving your credibility. If you do not have a steady stream of revenue, financial institutions might view you as a high-risk borrower. They can also charge you a higher interest rate or turn down your loan application. If you believe that only having a property on your side will get you a loan for your business, you are mistaken. Before approving a loan against property, financial institutions assess several factors. Hence, before deciding to go for the best loan against property for your business, you must first increase your sales revenue. This way, you can get a better deal from lenders.
Loan Tenure:
A loan against property is usually available for a long period of time (longer than unsecured loans). One can usually avail this loan for a maximum period of 15 to 20 years. So, before choosing a LAP for your business, it is advisable to assess the maximum time you need as per your repayment budget. Always keep in mind that the longer the tenure, the higher will be the total interest component. As a business owner, you may wish to borrow a smaller sum of money at times, and you may also wish to close your loan as soon as possible. This means, it is a good idea to check with your financial institution on the minimum LAP tenure and foreclosure process.
To Conclude:
If you are just starting out and applying for a loan against property for business, you need to be extra cautious. If you are unsure about your requirements, a misstep could result in EMI default and the loss of your mortgaged property. And a poor decision will have long-term consequences on your business. So, before applying for a loan against property, it is a good idea to think about and analyse all the above-mentioned aspects.
