Running a business often requires funds at different stages. Money may be needed to expand operations, purchase equipment, increase inventory, open a new office or manage working capital. For business owners who own a residential or commercial property, a loan against property for business can be one way to arrange these funds.
Unlike an unsecured business loan, LAP is backed by property. This can allow borrowers to access a higher amount, depending on the property value, income, credit profile and the lender's policy.
But choosing a bank for a business LAP requires more than checking the interest rate. The maximum loan amount, repayment period, property accepted, overdraft option, processing charges and prepayment conditions can all make a difference.
Here are some banks that business owners can consider when looking for a loan against property for business in India.
What is a Loan Against Property for Business?
A Loan Against Property is a secured loan where an eligible property is mortgaged with the lender as security for the loan.
A business owner can use the funds for permitted business-related requirements such as expansion, working capital, purchasing machinery, setting up a new business location or other financial needs allowed by the lender.
The property remains with the borrower, but the bank has a mortgage interest in it until the loan is repaid as per the agreed terms.
Since LAP is secured against property, it can be suitable for borrowers who require a relatively large amount of funding and have a property that meets the lender's requirements.
Banks Offering Loan Against Property for Business
1. Federal Bank
Federal Bank offers Loan Against Property under its Property Power product. The facility can be considered for business and other permitted financial requirements.
The bank offers loans of up to ₹20 crore, subject to eligibility and applicable terms. Borrowers can choose between a Term Loan and Overdraft facility depending on their funding needs.
Eligible residential and commercial properties can be considered under the product, subject to the bank's property and documentation requirements.
The loan can be used for requirements such as business expansion and other permitted purposes. Federal Bank also provides a balance transfer facility with additional finance, subject to eligibility.
For self-employed customers, the bank also mentions a surrogate scheme. This makes the product relevant for business owners who have a suitable income profile and property.
Federal Bank's property loan interest rates currently start from 8.20% p.a. onwards, subject to applicable conditions.
For a business owner looking for a relatively high loan amount along with Term Loan and Overdraft options, Federal Bank can be one of the lenders worth considering.
2. HDFC Bank
HDFC Bank offers Loan Against Property against eligible residential and commercial properties.
The facility can be used for different financial requirements, including business-related needs, subject to the bank's terms and eligibility criteria.
HDFC Bank offers a repayment tenure of up to 15 years. The amount that a borrower can receive depends on factors such as property value, income, repayment capacity and credit profile.
For business owners, the main advantage of using a property-backed loan is the possibility of arranging a larger amount compared with some unsecured borrowing options.
However, borrowers should compare the actual interest rate offered to them along with processing charges and other applicable costs before applying.
3. ICICI Bank
ICICI Bank provides Loan Against Property for borrowers who need funds for different purposes, including business requirements.
Business owners can use the loan for requirements such as business expansion, subject to the lender's terms.
The repayment period can extend up to 15 years. ICICI Bank also provides an overdraft facility, which can be useful for businesses where the need for funds changes over time.
The bank also offers balance transfer options for eligible borrowers. This can be considered by business owners who already have a property-backed loan with another lender and want to evaluate the possibility of transferring the outstanding loan.
Before choosing the facility, borrowers should check the applicable interest rate, loan-to-value ratio, processing charges and prepayment or foreclosure conditions.
4. IDFC FIRST Bank
IDFC FIRST Bank offers Loan Against Property that can be considered for business funding requirements.
The bank provides LAP of up to ₹15 crore, subject to eligibility and other applicable conditions. The repayment tenure can go up to 25 years, giving eligible borrowers the option of spreading repayment over a longer period.
The bank may consider different financial details while assessing a self-employed or business borrower. This can include income, banking transactions, GST returns and rental income, depending on the applicant's profile.
IDFC FIRST Bank also provides balance transfer and top-up options, subject to eligibility.
For a business owner who wants a longer repayment period or is considering transferring an existing property-backed loan, this can be an option to compare.
How to Select the Right Bank for Business LAP?
Every business has different funding requirements. A lender that works well for one borrower may not necessarily be suitable for another.
Here are some factors to check before applying.
1. Check the required loan amount
Start by calculating how much money the business actually needs. Then check whether the lender can provide the required amount against the property's value.
The maximum amount advertised by a bank does not mean every borrower will qualify for that amount. The final sanction can depend on income, property value, credit history and repayment capacity.
2. Compare interest rates
Interest rate has a direct impact on the EMI and overall repayment amount.
Instead of comparing only starting rates, check the rate offered for your specific profile. A small difference in the rate can make a noticeable difference when the loan amount is large.
3. Look at the tenure
Business cash flow can change from month to month. A longer tenure can reduce the monthly EMI, but it may increase the total interest paid during the loan period.
Choose a repayment period that keeps the EMI manageable without unnecessarily increasing the overall borrowing cost.
4. Check the property requirements
Banks have different rules for the types of properties they accept.
Before applying, check whether the property is eligible and whether the ownership documents, title and other property papers meet the lender's requirements.
5. Consider an overdraft facility
An overdraft facility can be useful when the business does not need the entire loan amount at once.
For businesses with changing working capital requirements, this type of facility may provide more flexibility than taking a traditional term loan, subject to the lender's terms.
6. Check all charges
Interest is not the only cost associated with LAP. Look at processing fees, legal and valuation charges, documentation charges and other applicable fees.
Checking these charges before applying gives a better idea of the actual cost of the loan.
7. Understand prepayment conditions
If the business generates additional cash, the borrower may want to reduce the outstanding loan.
Therefore, check the applicable prepayment and foreclosure conditions before signing the loan agreement.
Which Bank Should a Business Owner Choose?
The right bank depends on the business owner's financial profile and funding requirement.
Federal Bank can be considered by borrowers looking for a property-backed loan of up to ₹20 crore, along with Term Loan and Overdraft options. Its property loan interest rates currently start from 8.20% p.a. onwards, subject to applicable conditions.
HDFC Bank can be considered for LAP against eligible residential and commercial properties, while ICICI Bank offers an overdraft option and business-related usage. IDFC FIRST Bank may appeal to borrowers looking for a longer repayment tenure, with LAP tenure going up to 25 years, subject to eligibility.
Rather than selecting a lender only because it has a lower advertised interest rate, business owners should compare the complete loan offer.
Final Thoughts
A Loan Against Property can be a practical funding option for a business owner who has a suitable property and needs a larger amount of capital.
The funds can help with business expansion, working capital and other permitted requirements without selling the property. At the same time, the property remains pledged as security until the loan is repaid.
Federal Bank, HDFC Bank, ICICI Bank and IDFC FIRST Bank are some of the lenders that business owners can compare for LAP.
The final decision should be based on factors such as interest rate, loan amount, tenure, property eligibility, LTV, repayment flexibility, processing charges and prepayment terms.
A careful comparison can help a business owner choose a Loan Against Property that matches the business's funding needs and repayment capacity.
