For a new business to become successful, choosing the right source of capital, at the right time, is very important. There are many options available to entrepreneurs apart from investing their personal fund, like taking personal loans, business loans, gold loans, or loans against property. But not all options are suitable for everyone. Remember, higher interest charges can drag down the performance of your business in unforeseen ways.
So, it becomes important for entrepreneurs to make an apt funding choice. In such cases, loans against property (LAP) are the most suitable and accessible option to raise capital for new as well as established businesses. Under this loan, a business owner can get a loan by pledging property as collateral.
LAP is one of the most preferred options for entrepreneurs and people in business to fund their capital requirements, and here are the reasons why:
Lower Interest Cost
As LAP are secured loans with affordable interest rates, LAP is the cheapest form of credit available from banks after the home loan category.
The loan against property interest rate depends upon your loan amount and your repayment capabilities. However, overall, the difference in the interest rate of LAP is more than 2% compared to personal loans, which is a huge one.
Higher Loan Amount
Usually, banks offer LAPs up to 90% of the value of the property with the sums reaching up to Rs. 10 crores. It is a good idea to understand the cap on the amount available as a loan. However, it should be noted that the quantum of loan approved also depends on the repayment capacity of the borrower. If the borrower fails to repay the loan along with the total interest obligation, then the borrower stands to lose the ownership of the property.
Long Repayment Tenure
As the loans come secured under the LAP option, the borrower enjoys the flexibility of long repayment tenure, which can stretch to a maximum of 15 years. It helps take away the stress for repaying the loan immediately, and the organisation can shift their focus to the core business activity.
LAP has higher approval rates from banks as compared to any other form of loan. With easy documentation processes, a loan against property’s eligibility is relaxed and hassle free.
The checklist for the loan against property documents required by banks are:
- Proof of Identification.
- All legal documents of the property.
- Proof of business existence.
- Proof of Income.
- Bank Statement (last 6 months).
- Investment Proof.
- Professional Degree Certificate.
A loan against property is a very suitable option for new business owners to raise capital because of its cost-effectiveness, long repayment tenures, speedy approvals, and easy documentation process. If there is a clear business roadmap, cash flow projections, and business feasibility, then raising funds under LAP option is the best option. Further, it will help the business owner to put the asset under productive use and you can still enjoy the ownership of the property.