Are You a Start-up Owner?

Indian cities like Mumbai, Delhi and Bengaluru have topped the global commercial property market in terms of annual rental yields as demand for commercial spaces has picked up in recent times. These three markets have outperformed all other global business hotspots with 9.5% to 10.5% annual returns led by growing depth of the lease market and demand for commercial properties, says an article published in The Economic Times in October 2015. Non-residential properties are treated differently by banks and financial institution and, therefore, the rules of commercial property loans are different.

Buying Your Own Office or Retail Outlet

If you are considering buying a commercial space by taking a loan, here is what you must be prepared for. There are two categories of properties in this section: ready to move in and under construction. Banks are less willing to offer finance for commercial space and more so for under-construction ones because of their unsecured nature. You must check the underlying features of a loan before deciding on a certain property so that you are eligible and can get the maximum amount of money. Listed below are some characteristic features of a commercial property loan:

1.      Loan to Value Ratio (LTV) – LTV is the actual percentage of property value that the banks disburse as loan. Unlike residential property loan, where the LTV could be as high as 80 percent, the LTV for a non-residential space is 55-60%. In other words, the banks only finances 55-60% of the purchase amount, the rest being borne by you.

2.      Processing Fees – The processing fees could be as high 1-2% of the loan amount, unlike their residential counterparts where it is a predetermined fixed cost.

3.      Rate of Interest – It is generally 1-2% higher than their residential counterparts and can even go up further in case of a bad credit report.

4.      Tenure – The maximum tenure for such type of credit facility is not more than 10 years in most cases.

5.      Age – The applicant must be more than 21 years and should not exceed the age of 60 upon maturity.

The banks may get the property assessed by a professional in order to estimate its real value. Moreover, banks do not offer commercial property loans for very old properties that do not conform to the new security standards. Banks also check your credit worthiness which includes previous loan and repayment history as well as the credibility of the builder in question.