Over the last few years, commercial properties have delivered better returns than residential properties. However, the process of buying a commercial property is generally a bit more complex and therefore, investors usually stay away from such investments. In this article, we talk about how commercial investments are made easy with commercial loans.
What is a Commercial Property Loan?
Commercial property loans are loans availed of by mortgaging a commercial property. If you own a commercial property, you can avail of commercial property loan by pledging it as collateral. The LTV ratio for commercial property loans can go up to 75%. However, the maximum amount that you can get depends on several different factors, such as the location of the property, its physical condition, your income, credit score, etc. Once you pledge a commercial property as security and avail of a loan against it, your lender will place a lien on the property. After this, while you will be able to use the property as you like and even earn rental income from it, you won’t be able to sell it without having the lien removed from it first.
If you are planning to avail yourself of a commercial property loan, here are a few things you must know:
- Funds availed of under commercial property loans come with zero end-use restrictions. In other words, lenders do not concern themselves with how a borrower plans to spend their loan money. Thus, borrowers can use the money to buy another property, start a business or even pay for a child’s education. Thus, commercial property loans can become an easy way of navigating a personal or professional emergency.
- Commercial property loan tenor can go up to 17 years. Such a long repayment tenor helps ease the burden of loan repayment. However, one must keep in mind that a long tenor also increases the total interest payout on one’s loan and therefore, the cost of borrowing money. Therefore, borrowers must try and keep their EMIs low and affordable while also keeping the tenor as short as comfortably possible.
- The LTV ratio for commercial property loans can go as high as 75%. Thus, these loans give borrowers access to a substantial amount of money. For instance, if a borrower pledges a high-quality collateral worth Rs.2 Crore, they can avail themselves of a loan up to Rs.1.5 Crore. However, the final amount that one gets depends on many other factors as well as, such as the loan applicant’s income, credit score, existing debt-to-income ratio, etc. In general, borrowers with a high credit score, a stable income and a low debt-to-income ratio who pledge high-quality collaterals with high resale value get offered the best commercial property loan deals.
- Commercial property loan interest rates start from 9% per annum and can go up to 18% per annum. Borrowers must try to avail themselves of the lowest loan against property interest rates possible. Doing so allows an individual to repay their loan comfortably.
- To experience a hassle-free commercial property loan application process, please keep all the required documents ready with you. In general, most lenders ask for the following documents to consider one eligible for a commercial property loan: form 60, identity and residence proof documents, income proof documents, and all documents related to the property you plan to pledge as collateral. Your lender may ask you to submit additional documents as well. So, it’s suggested that before you begin with the commercial property loan application process, talk to your lender regarding the documents they will need to process the loan
