Commercial Property Loan in India – A Complete Guide
When it comes to taking a loan for the purchase of property, most people are aware of the availability of the Best Home Loans in India for residential property. However, not many know about commercial property loans, which can be conveniently procured when one is facing a dire need of real estate to conduct business.
Let us take a quick look at some of the essential aspects of this incredibly useful loan product, which is also known as Non-Residential Property Loan:
Commercial Property Loan Purpose
One can avail a commercial property loan for –
Purchase of an under-construction office space
Purchase of a ready to occupy office space
Purchase of an under-construction outlet
Purchase of a ready to occupy outlet
Commercial Property Loan -Loan to Value Ratio (LTV)
The proportion of the market value of the property that the lender is ready to finance is known as Loan to Value Ratio or LTV. While the LTV is often higher in case of housing finance such as Bank of Baroda Home Loan and can go up to 75-80%, the same cannot be said for commercial property loans.
A large majority of lenders only offer up to 55% of the value of commercial property as the loan, leaving the onus of arranging the remaining account on the business owner.
Commercial Property Loan Processing Fee
When you opt for a loan to purchase a commercial property, you can expect to pay a processing fee of 1% to 2% of the loan amount plus taxes.
Commercial Property Loan Interest Rate
More often than not, banks and lenders levy a comparatively higher rate of interest on Commercial Property Loans, which may range from 9% to 15% per annum, depending on the bank you take the loan from, and the bulk of loan that you apply for.
Commercial Property Loan Repayment Tenure
In a vast majority of cases, the repayment tenure of a commercial property loan ranges from 10% to 15%. Considering that sometimes a commercial property loan may be on the upwards of Rs. 50 lakh, to up to Rs. 5 crores, the rate of interest is also significantly high. Thus the borrower may be burdened by an exceedingly high EMI outgo.
Factors Affecting the Approval of Commercial Property Loans
Now that you are aware of the basic aspects of a commercial property loan, let us help you understand the impact of various factors on the approval of the loan application.
Category of the Builder
This is applicable only when the loan is being procured for an under-construction property. In such cases, it becomes the prerogative of the lender to see whether or not the construction of the property will be completed on time. To this end, the lender will go through the past records of the builder. If the history of the builder doesn’t seem satisfactory, the loan application will be turned down.
When it comes to commercial properties, lenders are required to be rather stringent and double check if all the technical specification are being met. These include aspects like lifts, elevators, fire extinguishers, emergency evacuation plan, double staircases, emergency exits and more. Only if the Home Loan Provider is completely satisfied with the arrangements in the building/site, they approve the loan application. The reason behind this strict compliance requirement is the protection of the business premises, and therefore of the business itself.
For approving a loan for commercial property, the lender needs to be assured that all statutory approvals have been received and that there is no foreseeable reason that may lead to the demolition of the premises. To this end, the lenders usually check the clearances for the building plan from the local Municipality and the fire department.
It has been observed that on numerous occasions the commercial property loan borrower conveys a higher value of the property, than its actual cost, in a bid to avail a higher loan amount. To combat this issue, lenders depend on a professional evaluation team which helps them assess the actual value of the property and arrive at the loan amount based on the same.
The Newness of the Property
A newly constructed or under-construction property is more likely to be safety compliant than an older one. Besides, in a few cases, older properties also stand the risk of being demolished for the purpose of reconstruction, or other safety concerns. This is why lenders prefer to deal with new properties and not the old ones. In fact, in some cases, the risks involved in older properties may become the sole reason for the rejection of a loan application.
We hope that you now have a fair idea about Commercial Property Loans in India, how they can be borrowed, and what are the factors that affect the approval of loan applications in this regard. As discussed earlier, you must remember, availing a loan for commercial property is a costly feat, and you should only opt for the same if you have an efficient repayment plan in place, especially if your business is new. After all, you do not want a serious debt like this burden you, when you are still testing waters and pushing hard to achieve the desired level of success through your venture!
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