Setting up a business and expanding it often requires adequate capital intake in one go, to foot various expenditure. Lack of funds mean that you may have to reconsider your business’s expansion and growth plans. In such scenarios, it becomes crucial to hunt for suitable financing options that are readily available and provide financing of high value for business needs. Which is why, a loan against property can prove to be quite handy.
A loan against property, as the term indicates, is essentially a large loan amount that the lender sanctions when you pledge a residential or commercial property as collateral. The loan amount is calculated based on the property value and usually the repayment tenure is long. It naturally makes taking this kind of loan affordable.
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Here are some more key reasons why a loan against property can be the right financing option for your venture.
- Easy loan availability against asset collateral
Unlike various business loans that are unsecured in nature and require your business to fulfil stringent eligibility requirements to avail funding, a loan against property is based on asset collateral. The lending mechanism of such a loan is based on the process where an eligible individual extends a residential or commercial property as collateral to avail funding against the inherent equity of such asset.
Such asset acts as a security against any risk of repayment default that the borrower holds and can be used to recover the losses a lender would bear in case of such a default. Thus, lenders agree to readily provide financing against a residential or commercial property as a collateral. These loans are also easily approved based on the profile of the borrower and the market value of the asset provided as security.
In case of business funding, this feature of a loan against property can come in handy and allow your venture to access finance without much delay. Apart from meeting emergency financing needs, such readily available funds can also help your business to seize available market opportunities.
- Financing of high value
Thanks to some of the reputed lenders providing high-value funding as loans against property, your business can easily avail funds of up to Rs 5 crore through asset collateral. Such a high value means it gets easy to meet different expenditures without having to look for alternative funding sources. For instance, you might be planning to expand your business’s existing market presence though new outlets, offices, and the likes. Or you might need to upgrade plant and machinery for newer and better technological advantages. Any such expenditure can mean financing of significant value, which a loan against property can easily fulfil.
- Affordable rates of interest
As a loan against property is a secured advance, it implies lower risks for a lending institution as against any other unsecured financing option. Now, it is a well-known fact that the interest applicable on a loan reflects the risk such funding option bears and the profile of the borrower.
For example, unsecured advances like personal loans often attract high rates of interest to make up for the risk undertaken by a lender. Contrarily, a secured financing option like a loan against property attracts low risk as compared to unsecured advances due to the presence of collateral. Thus, the interest rate applicable to the loan is often competitive and more affordable.
Moreover, there are various ways in which you can reduce the applicable rate of interest conveyed to you by the lender. Such initiatives often aim at improving your overall loan eligibility so that the risk involved is reduced. An overall reduction in the rate of interest means businesses can avail financing of high quantum and pay it back affordably with easy EMIs over a selected tenure.
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- Extended tenure for repayment
Another critical reason why businesses can utilize property loan financing for business funding is that these advances come with an extended tenure that can go beyond 2 decades. With some of the best lending institutions, it is easy to secure funding with a tenure of 15 years or more.
Such extended tenure allows your business to manage its finances better and spread the business liability over a long term and make EMI payments affordably. To select a suitable tenure for the advance, you can utilize dedicated financial tools like loan against property EMI calculator. You need to enter only a few essential details like the loan amount you seek, the interest applicable and a suitable tenure. Based on these details, the tool computes the EMIs payable. If you do not find such EMI amount within an affordable limit or are willing to repay through higher EMIs, you can make changes to the tenure value to derive the right EMI value.
- Property ownership remains intact
As a property loan only requires you to collateralize the asset for raising funds and does not involve any ownership or possession transfer, you continue to be the owner of the said property. It hence allows you to utilise the underlying value of the asset to raise funds without having to dissolve ownership.
A loan against property is a great financing tool for various other reasons. For instance, it requires you to fulfil only a handful of eligibility requirements and involves minimal paperwork. But make sure to arrange all the necessary documents before applying for the advance so that the application process gets completed without any hassle and improves your chances of quick loan approval.