Loan against property for businesses: Eligibility, rate of interest, documents and more

Businesses expanding into new markets often take business loans for funding. Since expansion is a huge business expense, the loan amount applied for is usually high. Most banks ask for collateral for the loan to reduce the risk of their investment. An easy collateral businesses can offer banks is business property. A loan against property is one of the common business loans extended by financial institutions.

What is a loan against property?

A loan against land property is when financial institutions approve a business loan that has offered property as collateral. The loan amount approved will depend on the value of your property which is known as the loan-to-value ratio or LTV ratio.

These business loans are offered by various banks including SBI, HDFC, Bajaj Finserv, etc., and other financial institutions like NBFCs.

Features of loan against land property

Features of this business loan against land property will depend on the loan product you choose. Various financial institutions will have various offerings with different features. Here are some of the common features of these business loans:

• Loans sanctioned for commercial purchases like machinery and other equipment
• You can avail both working capital and term loans pledging property as collateral
• You can get as high as 90% of the property value as the loan amount
• Since property acts as collateral, you get flexible eligibility terms
• Relaxed documentation requirements

Eligibility criteria

The eligibility for a business loan against property is usually relaxed as there is collateral which reduces the risk of investment for the lender. Here are some of the common eligibility criteria for these business loans:

• A good credit score: Financial institutions will usually have a cut off limit for businesses applying for loans
• Annual turnover should above the limit recommended by the lender
• Business must have been in operation for more than 2 or 3 years
• Business must present the purpose of the loan
• Must have a decent track record in the industry with adequate sale figures
• Businesses shouldn’t be defaulters on previous loans taken

Documents required

Here are some of the documents required for these business loans:

• Documents to establish identity and address proof of the business
• Shop and Establishment certificate
• Documents pertaining to your property
• Annual return for the last 2 years including Profit & Loss (P&L) statement, balance sheet and income tax returns.
• Bank statements of the last 6 months
• GST registration certificate

Also read: How to get a commercial business loan?

Interest rates

Multiple factors affect business loan interest rates charged by lenders for a loan against land property. Some of these factors include:

• Value of the property: The market value of the property at the time of loan application
• Credit score: Having a credit score above 700 can reduce the rate of interest charged
• Tenure: The shorter the repayment tenure the higher the rate of interest
• Profile of the applicant: Lender will scrutinise details like age, job, income, experience, etc.
• Market conditions: Economic condition like inflation, recession, etc., will affect the interest rate

The interest rates differ according to loans offerings from different financial institutions. Have a look at interest rates of loans against property offered a few major financial institutions of India:

Lender	Loan amount	Interest rate	Tenure
Tata capital	₹ 5 lakh – ₹ 50 crore	Starts at 10.10%	1- 2 years
State Bank of India	₹10 lakh – ₹75 Crore	8% – 10%	5- 15 years
Axis Bank	₹ 5 lakh – ₹ 5 crore	Floating	20 years
Kotak Mahindra Bank	₹10 lakh – ₹5 Crore	9.5% – 12%	1 – 15 years
IDFC First	₹10 lakh – ₹7 Crore	8.25% – 20%	1 – 2 years

 

All financial institutions offering these loans will have a loan against property EMI calculator that will allow you to set the desired loan amount and interest rate and calculate your EMI. This interest rate calculator can help you choose the best lender according to your financial requirements.

You can try Tata nexarc’s Business Loans to get a loan offer in 5 minutes with interest rates that start at only 13% p.a. The loan application process is hassle free and the approval process is swift with options for choosing reputed lenders from across the country.