5 Reasons to Opt for Loan Against Property to Fund Your Business

by MyMoney Mantra FinTech (Financial Technology)

Starting off with a business is not easy, especially when it is about choosing the correct fund source to raise capital. With various credit options available like business loans, personal loans, and loans against property, it is crucial for entrepreneurs to select the most suitable credit option to begin with, their business. Here, we will discuss the top reasons for opting for a loan against property (LAP) to fund your business and how they fare against a personal loan. 


1) Funds with no restriction on end usage: Loan against property permits property owners to leverage their property for raising funds without having to lose out on their property ownership to meet business or personal requirements. The absence of end-use restrictions on loan against property makes them an alternative to top-up home loans and personal loans for property owners looking to fund their business.  


2) Lower interest rate: As a Loan against property is a secured loan option backed by security in the form of property, it generally comes at lower rates than a personal loan. Interest rates on LAP usually range between 8.20 % and 14.50 % p.a., while personal loans interest rate ranges anywhere between 10 - 24 % p.a based on loan amount and applicant’s repayment capacity. This makes LAP one of the cheapest credit options for those looking to avail of loans at lower rates. 


A brief on ICICI loan against property for those applicants’ looking to avail loan against property through ICICI Bank


ICICI loan against property is an instant and quick solution to all financial requirements, including business expansion, personal use or working capital. One can avail loan against property against their commercial, residential or specialized property.


ICICI loan against property is one of the unique propositions that provide loan against property for a longer repayment tenure of up to 15 years at the lower interest rate, which actually results in lower obligation for loan against property applicants may it be a self-employed professional or salaried individual. This credit option even provides a choice to applicants to take up a facility in a combination of the overdraft facility and term loan based upon their requirements.


ICICI loan against property interest rates table


Priority Sector Lending ( PSL )

Non-Priority Sector Lending (Non-PSL)

< = 50 lakh

Repo Rate + 4.85 % ( 8.85 % ) - Repo Rate + 5.50 % ( 9.50 % )

Repo Rate + 5.35 % ( 9.35 % ) - Repo Rate + 6.00 % ( 10.00 % )

50 - 100 lakh

Repo Rate + 4.60 % (8.60 % ) - Repo Rate + 5.25 % ( 9.25 % )

Repo Rate + 5.10 % ( 9.10 % ) - Repo Rate + 5.75 % ( 9.75 % )

> 100 lakh

Repo Rate + 4.35 % ( 8.35 % ) - Repo Rate + 5.00 % ( 9.00 % )

Repo Rate + 4.85 % ( 8.85 % ) - Repo Rate + 5.50 % ( 9.50 % )


Repo Rate ( RR) is 4 %


3) Longer repayment tenure: Loan against property usually provides up to 15-20 years of repayment tenure, which comparatively is higher than personal loans that extend up to 5 years, with only a few lenders offering up to 7 years of repayment tenure. As longer repayment tenure equates to lower EMIs, selecting a loan against property might help in lowering your EMI burden.


4) Higher loan amount: Maximum loan amount in the case of loan against property depends upon the LTV ratio offered by the lender. Generally, lenders offer up to 50%-70% of the property’s value as a loan, which can go up to Rs 10 crore based on the property. However, the loan amount in the case of a personal loan may range anywhere between Rs 50,000 and Rs 40 lakh based on the applicant’s income and repayment capacity. Thus, the chances of availing of a higher loan amount in the case of LAP is much higher than if availed of personal loans.


5) Less emphasis is given on credit score while loan application evaluation: Credit score is one of the important factors considered by lenders when assessing the creditworthiness of applicants and for determining their probability of regular repayments. The role played by credit score and various other aspects linked with credit profile become highly crucial while assessing applications for the unsecured loan option, i.e. personal loan. However, in case of loan against property, pledged securities act as a backup for lenders in case of any non-repayment or default by borrowers. This enables lenders to become highly relaxed when evaluating the loan against property applications.


Bottom line


While a loan against property is a better option when compared to a personal loan based on loan repayment tenure, interest rate and loan amount, the credit option falls short in terms of loan disbursal time. Disbursal of LAP generally takes about 2 to 3 weeks as the lenders require verifying all property-related documents and conduct a technical study to assess the market value of the property before evaluating the loan against property application. Thus, a personal loan is a better credit option for those in need of funds at short notice to fund their business.


Also, note that a loan against property comes with the risk of your lender taking over possession of your underlying property in case of any default. Thus, ensure to consider your repayment capacity before choosing the loan against property repayment tenure. Choose shorter tenure only if you can repay your EMIs by the due date without compromising on your contributions for financial goals. Those who cannot opt for longer tenure for lower EMIs as failure to meet timely EMI repayments can result in steep penal charges and thus negatively impact your credit score and future loan or credit card eligibility. Loan applicants choosing longer repayment tenure can lower their overall interest cost by opting for the prepayment option from their surplus funds in future.

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About MyMoney Mantra Freshman   FinTech (Financial Technology)

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Joined APSense since, September 22nd, 2017, From New Delhi, India.

Created on Nov 15th 2021 03:18. Viewed 264 times.


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