Most Important Things Need to know About Commercial Property Loans



India’s commercial real estate sector is anticipated to grow at a CAGR of 13% by FY2027. As a result, several loan seekers opt for a commercial property loan to finance their commercial property-related expenses. This secured line of credit comes with flexible repayment terms and low interest rates. 

Continue reading to know more about commercial loan against property

What is a commercial property loan? 

A commercial purchase loans is a secured credit product that helps candidates fund their commercial property-related expenses. With the help of a loan against commercial property, candidates can finance expenses related to their office buildings, warehouses, retail stores, hospitality properties, factories, etc. 

What are the factors to be considered while opting for a commercial property loan?

Knowing the factors that affect a LAP and keeping them in check will allow borrowers to get the best deals while opting for this secured credit option. Willing borrowers must keep these pointers in mind before applying for a commercial property loan: 

  • Eligibility criteria and documents required

An applicant should check the eligibility criteria set by a lending intuition before applying for a mortgage loan. Knowing all the eligibility parameters and keeping the documents ready fastens the loan approval procedure. 

  • Loan repayment tenor 

Another important factor is the repayment tenor that the lender is providing. With a commercial loan against property, one can get a repayment tenor of 18 years. Borrowers should choose this tenor wisely as it directly affects the monthly instalment amount and total interest outgo.

  • Interest rates 

The interest rate determines the affordability of a credit facility. An individual fulfilling all eligibility parameters and mortgaging the right property will be offered a lower interest rate. In this regard, one can use a property loan EMI calculator to determine the monthly instalments beforehand. This online customised tool works on principal loan amount, interest rate and repayment tenor provided by a user. Based on these variables, it shows the monthly instalments along with total interest outgo by the end of the loan tenor.

Read More: Various Factors That Decide Your Loan Against Property Interest Rate

  • Loan to value ratio

The loan to value ratio is the percentage of the current market value of the property that a lender will provide as a loan. This factor generally differs from lender to lender. 

  • Developer’s profile 

In case a commercial property is under construction, the lending institution will check the financial stability and track record of the property’s developer. The lending institution will also consider the delivery schedule of the property if an applicant is purchasing a property directly from a developer.

Further, one should also check the additional fees and charges on a property loan. These additional costs add up to the total repayment amount. Hence, one should know these charges while choosing their lending partner. 

Benefits of opting for a commercial loan against property 

Willing borrowers should know these beneficial aspects of opting for a commercial property loan: 

  • Tax benefits 

Applicants can avail of the tax benefits on LAP under Section 37(1) and 24(B) of the Income Tax Act of 1961. However, one should keep in mind that he/she cannot claim the exemptions if the borrowed sum is utilised to transform a mortgaged property. 

  • Increasing value of a property 

Investing money in commercial real estate can help candidates increase their net worth. This is because the value of a commercial property appreciates with time due to infrastructural and demographic developments. 

  • Low interest rates

Being a secured line of credit, financial institutions offer lowest property mortgage loan interest rate. This is because, in case of any credit defaults, lenders can recover the unpaid dues by selling off the mortgaged property. 

In the End

Moreover, several financial institutions in India extend pre-approved offers on secured credit facilities, such as home loans, loans against property, etc. These offers streamline and fasten the overall loan application stage and enable fast disbursal of a loan. Eligible candidates can check their pre-approved offers by feeding in their names and contact details on the website of their preferred lenders. 

A commercial property loan can be a good investment option. This credit facility allows borrowers to obtain a sizable loan amount from their lender and reap the maximum benefits associated with it. Nevertheless, it is necessary to do thorough research and compare all the lending options in the market. Doing this will ensure a smooth borrowing experience and help prevent the risks of credit defaults throughout the loan repayment tenor.