Be it starting a new business, expanding the existing one, or just managing the day-to-day expenses, you need a considerable amount of money to keep the business running and growing. Can taking a loan against your property be an ideal choice to manage your business expenses? Read this post to find out.
Today, there are different types of loans available for businesses. As these loans are exclusively designed to meet the challenging financial needs of an enterprise, most of them are big-ticket loans with flexible repayment tenures. However, many business owners still prefer the traditional way of pledging their property against the loan amount.
Popularly known as LAP (loan against property), these loans can be taken against fully constructed houses or even commercial or residential properties. But is LAP the right choice for business? Check out the pros and cons to make your decision.
Pros
1. Higher Loan Amount at Attractive Interest Rate
Many top lenders offer LAP of up to Rs.10 crores to help businesses meet their financial needs. Moreover, as LAP is a secured type of loan where you keep your property as security with the lender, the interest rate is considerably lower than unsecured loans such as personal loans. As businesses generally need higher loan amounts, the smallest of differences in the interest rate can mean huge savings. This makes LAP a go-to option for enterprises looking for external funding.
2. Faster Approval
The secured nature of LAP also means that the approval is considerably quicker than unsecured loans. With unsecured loans, the lenders prefer a higher level of scrutiny to make sure that they are lending money to a creditworthy individual to minimize the risk of default. If you have a clear property title and some other ownership proofs, it shouldn’t be difficult for you to get a LAP for your business.
3. Flexible Repayment Tenure
Even the repayment tenure with LAP is highly flexible and is generally ranges between 12 and 15 years. This helps in eliminating the substantial financial burden that comes typically with loans of shorter tenures.
If you are taking a LAP from a reputed lender, rest assured that you will have adequate time to repay the loan through monthly installments.
Cons
1. Lender Has the Right to Sell the Property
As your property backs LAP, the lender has the right to sell your property in case you default on repaying the dues. However, if you understand your requirements and are certain that you will be able to repay the loan on time, there is generally no need to worry. Lenders often also rework the loan EMIs on request.
2. Loan Amount
With a loan against property, lenders usually only offer 50{9aec2f3753136e72632b4743edb3bd445b461a73e7aee1730978bb7c413976bd}-70{9aec2f3753136e72632b4743edb3bd445b461a73e7aee1730978bb7c413976bd} of the cost of the property as the loan amount. The loan amount also varies based on the type of property you pledge against the loan. However, if you own residential or commercial property, the loan amount would still probably be large enough to meet the financial requirement of your business.
Should You Take a LAP?
Taking a loan against your property is one of the best ways to meet the financial emergencies of your business. It allows you to borrow a higher amount at an attractive interest rate and has flexible repayment tenure to ensure enhanced convenience.
While there are a few disadvantages too, it is still a considerably better option as compared to many other types of loans. If you are borrowing responsibly and have a solid repayment strategy in place, you can go ahead with LAP with full confidence.
