When it comes to availing of finance through loans against property, individuals often perceive funding against residential property. However, one owning commercial property can also utilize the underlying value of the asset to avail funds via a loan against commercial property. These financing options are usually provided to renovate non-residential properties or meet other commercial expenses.
Some of the common expenses you can meet with a commercial property loan are –
- Office space purchase (under construction).
- Under-construction outlet purchase.
- Occupation of ready office space.
- To open a shopping complex.
- To meet restaurant set-up expenses.
The list is only indicative and expenses can vary from one borrower to another. Below given are other essential details related to the advance you would need to know when availing of the financing option.
Eligibility Requirements for Commercial Property Loan
Both self-employed and salaried individuals can avail of a commercial property loan for their financing needs. While the eligibility factors remain the same, the conditions laid down may vary from one lender to another. You need to meet parameters based on the following eligibility factors –
- Age
- Income
- Property value
- Property location
- Employment status
Further, one must also take care of the interest rates and charges applicable on their loan against commercial property financing.
Commercial Property Loan: Interest Rates and Charges
The interest rates and other charges levied on commercial property loans also determine your loan affordability through EMI determination. You must take care of the following charges and compare lenders based on them to apply.
- Interest rate: It varies from one lender to another. Use the EMI calculator to assess your installments based on this rate and apply accordingly.
- Processing fees: Depending on the loan amount sought, the processing fees often vary between 1 to 2% of the financing value.
- Mortgage origination fee: It is a fixed, one-time, non-refundable charge levied by lenders before creating a mortgage on your commercial property.
- Penal interest: It is levied in case an EMI due is not paid in time, and is chargeable monthly for each EMI.
- Other charges: They can include bounce charges, statement charges, loan account maintenance charges, etc., and vary with the lender.
Loan to Value Ratio (LTV)
When providing financing against asset collateral, lenders consider a part of the property’s value as risk margin and determine LTV accordingly. LTV is thus the percentage cap on a property’s market value a lender is ready to extend a loan.
As a commercial property loan is also a collateral-based advance, it also comes with a set LTV, which can differ from one person to another. In the Indian financial market, the loan to value ratio for a commercial property loan can vary between 50% and 70% of the property’s current market value.
Working of a Commercial Property Loan
The working of a commercial property loan is similar to any other secured funding option, with the exception that only a commercial property is provided as a mortgage. Thus, once you have applied for the financing option with your selected commercial property as a mortgage, the lender assesses the loan application and verifies your credentials.
Next, the property documents are verified along with a site visit for confirmation, and the loan is approved. You would then need to repay the loan amount in EMIs payable until the tenure’s end. Once the loan amount is repaid in full, the lender releases the property from the mortgage and issues a No-Objection Certificate, returning complete ownership rights to you.
Top Features under Loan Against Commercial Property
Following are some of the top features that lenders provide along with a loan against commercial property.
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High-quantum financing
Commercial property loans are usually high-value advances. Thus, depending on the value of your commercial property, the loan amount can go up to 70% of such value.
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Extended repayment tenure
These are also long-term advances and can be paid affordably in easy EMIs. You must, however, choose a tenure that also keeps the interest payable within limits along with keeping the EMIs affordable.
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Balance transfer facility
With some of the best lenders, the balance transfer facility is also available against minimal charges. You can also avail of additional financing as a top-up loan under this facility.
A loan against commercial property is also available at affordable rates with some of the best lenders in the market. Further, you can also be well-informed about the foreclosure and part-prepayment charges, so you can make suitable repayment decisions for maximized savings.