The Indian credit market is flourishing and one of the main reasons is the ease of availing loan against commercial property. Lenders wholeheartedly welcome any individual seeking a loan against their commercial property. This is mainly because the commercial property loans are not collateral-free, and the lender has the benefits of recovering it through the mortgaged property if the borrower fails to repay the loan amount.
Generally, a loan against commercial property is taken by a business from a financial institution to settle down any cashflow crunches for the smooth operation of the business.
Know the Required Documents to Avail a Commercial Property Loan:
To avail a commercial property loan, there are some criteria which the borrower is needed to meet. A few of them are:
- Age of applicant: Individual must not be older than 50 years at the time of loan application.
- Age of entity: Businesses registered as private limited, LLP, or partnership firm should be in existence for at least 3 years.
- Documents: Copy of every essential document related to business should be produced. Documents like GST certificate, MOA (Memorandum of Association), company PAN card, trade license, certificate of incorporation, audited finances, etc. come under the list of required documents.
Know the Interest Rate Charged By the Lenders:
Mostly, NBFCs and other financial institutes charge an interest rate anywhere between 8% to 15%. Depending on the nature of the business and the credit score of the individual, the interest rate may change. Therefore, it is very important to have a good credit score.
Know the Factors That May Influence Property Loan Interest Rate:
- Credit score: As we all know, lenders perform a background check of the borrower to assess whether the person is eligible or not. Generally, they just run your PAN card number in the CIBIL forum and check your previous credit history.
- Loan period: Generally, a loan for a short duration may save your money on the interest rate and overall sum but will surely increase your EMIs payable. The interest accrued, and the principal sum added increases the overall monthly payments.
- Property type: The interest rate charged by the lender somewhat depends on the mortgaged property too. Location of the property, age of the property, condition of the property, etc. Are key factors for the lenders in deciding the lending rate. Then the borrower may expect a lower rate of interest on the sanctioned amount.
- Applicant type: Depending on the applicant’s source of income, lenders decide the loan amount, tenure, and interest rates. Where monthly salary is not the concern, then the chances are the borrower may secure favourable terms on the advance, including attractive interest rate.
On the other hand, self-employed individuals (excluding established professionals) may face some difficulties in negotiating the interest rates. The main reason for this is the uncertainty in the field of business. No lender wants a piled-up NPA (non-performing assets) which may be an outcome if the borrower does not repay the loan in time through EMIs.
How Is Commercial Property Loan EMI Formulated?
All online calculators use the same formula to calculate the commercial property loan EMI.
- The loan calculators use the same standardized method.
- They use this method to accurately calculate the amount you would need to pay as EMI against your loan.
The formula for calculation of property loan EMIs goes as –
EMI = [P * R * (1+R)n]/ [(1+R)(n-1)]
Where, P= Principal amount
R= Rate of interest
And n= Time or Tenure
Loan against commercial property is a good way to tackle any immediate business monetary issue. Maintain a good credit score and check your eligibility fulfilment before applying for a property loan.