A loan Against Property is a type of loan that uses your commercial or residential property as collateral. These types of secured loans are customarily used as a quick means of financing by an SME to expand its business.
The property loan amount is derived as a percentage of the market value of the property being offered as collateral. The percentage ranges from 50%-60%, depending on the bank and the nature and condition of the collateral.
For example, if your property is worth Rs. 10 lacs in the market, then a bank may issue a loan against the commercial property at an amount between Rs. 5 and 7 lacs depending on factors associated with repayment ability.
A property loan is often taken in the form of a term loan (repaid through EMIs) or through an overdraft line of credit.
A loan against property generally has the potential to be of a larger ticket size relative to other SME loans. Up to Rs. 25 crores can be disbursed for a loan against property, depending on the bank, location, and value of the property being mortgaged.
Under RBI regulation, banks are required to dedicate a percentage of all business funding to the priority sector, which is mainly composed of rural businesses involved in agriculture. For SMEs that are categorized under the priority sector, loans against property can be taken as loans against agricultural land.
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What are the Benefits of a Loan Against Property
- Lower interest rates compared to personal loans
- The longer tenor of the loan, makes the repayment process easier for businesses
- Easy documentation
- Quick approval and processing
Interest Rates and Tenure
- The interest rates for a property loan commonly ranges from 12%-15%.
- The maximum tenure usually has a maximum tenor of 15 years.
To be eligible for loans against property, applicants must be
- Indian Residents
- Salaried, Self-Employed, or Government Employed individuals
- At least 25 years of age but not more than 65 years
- Earning at least Rs. 3,00,000 – 5,00,000 of net income
The type of property accepted as collateral in a property loan varies from one bank to another. Banks accept at least one of the following:
- Self-occupied commercial property
- Rented commercial property
- Vacant commercial property
- Self-occupied residential property
- Rented residential property
- Vacant residential property
What are the Documents Required to Get a Loan Against Property?
The basic documents required to get a loan against property are the following:
Proof of Identity: Any government-issued photo ID card such as an Aadhar Card, Passport, Voter ID Card, or Driving License.
Proof of Address: Any government-issued document that has your current residential address such as an Aadhar Card, Voter ID Card, Passport, or Driving License.
Property documents: Ownership documents of the property that you are keeping as collateral. These may include Sale Deed, Allotment Letter, Possession Letter, Property Tax Receipt, etc.
Income proof: Salary slips, bank statements, Income Tax Returns (ITR) for the last 2-3 years, or any other document that proves your income and repayment capacity.
Business proof: If you are a self-employed professional, you may be required to provide your business registration documents, balance sheet, profit and loss statement, etc.
Bank statements: Bank statements for the last 6 months to a year may be required to prove your financial stability.
Other documents: Depending on the lender’s requirements, you may also need to provide additional documents such as a NOC from the society, builder, or any other relevant authority.
It is always advisable to check with the lender about their specific documentation requirements before applying for a loan against property. It will help you in avoiding delays or rejections in the loan application.