Loans are a great way to raise money. The need for some quick, extra infusion of money may arise due to personal reasons, or due to a need to expand your business. Among the different categories of small business loans, a loan against property (LAP) is arguably one of the best ways to raise funds.
A loan against property (LAP) is a loan drawn by a person against his or her property/assets. The properties that can be used to avail a LAP include; a self-occupied or rented house, a piece of land owned by the loan seeker, a commercial building and so on. These loans generally have lower interest rates than personal loans, and also offer longer repayment periods which vary between 120 to 180 months.
Loan against Property are completely secure and therefore result in a lower rate of interest. What’s more, is that you can continue to live in/rent out/work out of the same premises even after you have obtained a LAP on it.
Loans against property are usually offered after a consideration of factors, such as the value of the property against which the loan is being sought, and the net business income of the loan seeker.
Here are some pain points that occur while seeking a LAP. Preparing for these beforehand will help ensure that your LAP application goes through.
1. Net business income
Lenders will consider your net business income, and whether you have any other outstanding loan or mortgage to pay back. Your net income is calculated by subtracting the EMI from any previous loan which ascertains the amount of money you can get as loan against property. Around 40 percent of the available monthly income is generally used to service the loan
2. Documents and paperwork
Many lenders will ask you for copies of your property documents for the tenure of the loan. Make sure you have them handy when you apply for a LAP.
Documentation for businessmen/businesswomen can include:
Identification and Address proofs
Proof of income
Income Tax returns for last 3 years (self and business)
Profit /Loss and Balance Sheet for last 3 years
Certification of Business Incorporation/Existence
Bank statements for 6 months
Cheque for processing fee amount
These loans also entail a fair amount of paperwork and as such may have a turnaround time of up to a couple of weeks. Plan accordingly. It may be a good idea to seek the help of a small business loans expert like Loan Frame, to help you with the paperwork.
3. Vintage constraints
Businesses must usually be operational for a certain amount of time before they become eligible for obtaining a LAP. Similarly, salaried people can get a LAP if they have been employed for a certain period of time. Make sure you check up on the same with your lender before applying.
4. Amount of loan required
Lenders generally disburse up to 60 percent of the value of the property under consideration, as the loan amount. With a capable service like Loan Frame negotiating on your behalf, lenders may be willing to disburse more than 60 percent of the value of your property as loan. Of course, since real estate prices are subject to fluctuations the amount of money you can raise is also subject to change. Decide the amount of loan you want to raise accordingly.
5. Lender scrutiny
Lenders have also become more cautious about the financial situation of LAP seekers. Be prepared to undergo a thorough inspection with regards to your current credit situation. If possible, seek the help of a third party assessment service like Loan Frame to help prepare you for the lender scrutiny.