Micro, small, and medium enterprises, or MSMEs, form the backbone of the Indian economy. These enterprises employ a large number of people and contribute to economic growth. However, running a small business in India is challenging. Lack of access to resources is a big issue for MSMEs. As a result, they have to let go of great opportunities. If you also own a small business and are facing a paucity of funds, then you can opt for a loan against property.
A loan against property is a high-value loan offered by banks and NBFCs. To apply for such a loan, you must offer a property as security. The lender will create a charge against that property and offer you up to 80% of the property’s value as a loan. You can continue to use the asset as needed, but you cannot sell it. The tenure for a mortgage loan goes up to 20 years, which helps lower your EMIs. You can use the money as per your needs, and there is no need to seek permission from the lender.
Read on to learn more about the benefits of using a loan against property (LAP) for small businesses in India.
Top Benefits of a Loan Against Property
When you apply for a LAP, there are some rules and terms that the lender will specify. If you follow these terms, you can enjoy many benefits from this mortgage loan. Here are some of the benefits of a property loan:
- Low-Interest Rate: When you take a loan against property, you offer security to the lender. This security lowers the risk for the lenders, and they can offer you better deals. One of the most useful benefits of a LAP is the low interest rates, which start as low as 11.9% per annum. With such low-interest rates, you can use the money for any of your needs.
- Long Tenure: One more benefit of a property loan is the long loan tenure. While most personal loans have a tenure of up to 60 months, a LAP comes with a loan tenure of up to 20 years. A long loan tenure means that your EMIs will be lower. Hence, you can use the amount as per your needs and repay these EMIs as per the schedule. As a small business, this benefits your business during the growth stage.
- High-Value Loan: The amount of money you can get as a mortgage loan is based on the value of the property. Many lenders offer between 60% and 80% of the property value as a loan. This can easily extend into crores of rupees, which is a huge amount. You can use this money for any of your needs, whether they are for business or personal use.
- Lower Charges: While lenders do levy legal and technical charges for a property loan, the other charges are quite low compared to other loans. It is true that you only need to pay these charges once, but they can still add up to a huge amount. But in the case of LAP, since these charges are extremely low or, in some cases, waived off, you can reduce the cost of the loan efficiently with this option.
- Foreclosure: Most lenders offer the option of foreclosure for a mortgage loan. Here, you get the option to prepay the loan if you have spare funds with you. The foreclosure charges depend on the amount of the loan that is still owed. But with this option, you can repay your loan on time and save on the interest costs you have had to bear.
- Property Usage: In the case of a loan against property, you can continue to use the property as per your needs. This means you can take out a LAP against your home and continue to live there without any problems. This makes LAP a good option to put your idle property to use and meet your money needs urgently.
- Quick Approval: Banks and NBFCs process a property loan quickly. Usually, they complete the process in 7–10 days, making it ideal for urgent financial needs. Most lenders use the latest technology, like AI, to process your loan application. Thus, you need not run around to complete the loan process on time.
- Disbursement Mode: Many banks offer you the option of taking the LAP as a line of credit. Here, you need to pay interest only on the amount you have used and not the entire loan value. You may also opt for partial disbursal, wherein the money is given to you after a specific period as per your needs. This reduces your interest costs.
- Top-Up Loan: Many lenders offer you the facility of a loan top-up if you repay your EMIs on time. The interest rate here will be the same as the original loan or the prevailing rates. Hence, you can meet your money needs without going into high-interest credit card debt.
- Flexible Usage: There is no limit on the purpose for which you can use a property loan. Whether you have a work-related need or a personal need, you can use this money as per your needs.
The Bottom Line
A loan against property is ideal for those with urgent money needs. It can be used for any purpose, is approved quickly, and has a long repayment tenure. To learn more about LAP and make sound financial decisions, you can read similar blogs and articles on the Piramal Finance website.