Generally, a loan on residential property is quite popular and easier to get approved and is offered by various banks and lenders. On the other hand, a loan on commercial property is not that easy as many people don’t know the procedures for getting it. So even if they want to take a loan payday cash advance close to me, a lack of proper knowledge stops them from doing so.
Let’s classify commercial property into two: office space and retail outlets. These two can again divide into ready for possession and under construction. When you want a fund with a commercial property under construction, the lenders will be concerned regarding the builder’s reliability. They must verify and confirm their position, i.e., if they are a buyer or a customer.
Procedure for Loan Against Commercial Property
A commercial property loan is a secured loan you can obtain by pledging commercial property. You get money based on the market value of your property and can use it for all kinds of expenses. You can use it for higher education, business expansion, weddings, debt consolidation, etc. If your profile matches the eligibility criteria, you can quickly avail a loan against commercial property. You must have all the required documents.
Differences Between Loan Against Residential and Commercial Property
Although the documents needed for the applicants’ eligibility are the same, some are different for loans against commercial property.
- Loan to Value (LTV) Ratio -: LTV for commercial property is limited to 55%, where you have to make more self-contribution. Whereas, for residential property, it ranges from 75% to 90%.
- High ROI -: While borrowing from a lender, the Rate of Interest(ROI) is very important. In a loan against commercial property, the interest rate will be 4% – 5% higher if your documents are not strongly supported.
- Higher Fees -: The processing fee for commercial purchases is 1% of the loan amount. There is a chance that some lenders will reduce it to 0.5% if they are impressed with your profile and property.
- Loan Tenure -: For commercial property, the loan tenure is up to ten years. But for residential, it can be upto 30 years. Thus, as the time limit is low compared with residential, you have to pay a higher EMI.
- Builder Category -: If the property you are going to pledge is under construction, the profile of the builder is particularly examined by the lender. It is very important to check whether the builder will complete the construction on time or not. Lenders will check with their previous projects and were they able to provide scheduled delivery and decide whether to approve a loan to a builder or not.
- Technical Appraisal -: Before approving a loan, a special technical appraisal team authorised by the lender will visit the building. They will verify each detail, such as an elevator, shafts, emergency exit, fire extinguisher, etc. The building should contain all the reasonable technical specifications. Then only your loan will be approved.
- Obtaining All Approvals -: The building should contain all the necessary approvals, such as an approved plan and a clearance certificate from different departments like fire, forest, etc. A pending approval brings the risk of demolition of the building.
- Residual Age of Property -: Lenders will not provide loans for old buildings. Because the building may not have certain technical specifications and may not be sure about safety hazards, check with your advisor for better options.
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- Minimum Area -: Mostly, properties are measured in square feet. Lenders can refuse the loan if an area is 250 square feet or less. Different lenders have different policies regarding this. It’s better to check with your advisor.
- Appraisal -: Sometimes, builders will show a higher cost for the building to get a higher loan. But an appraisal team assigned by the lender will verify the reports.
Documents Required
- Duly filled loan application with three photographs.
- Any proof of identity – PAN/Passport/Driving Licence/Voter ID Card.
- Address proof – Telephone Bill / Electricity Bill / Water Bill / Piped Gas Bill or Recent Copy of Passport / Driving Licence / Aadhar Card.
- Property documents – Construction Permit, Stamped Agreement for Sale, Occupancy Certificate, Maintenance/Electricity Bill, Tax Receipt, Payment receipts.
- Account details – Bank details of the last six months to check for outstanding loans, Bank statements for the last year.
- Income Proof for Salaried Applicant/Co-Applicant/Guarantor – Last three months’ salary slips, Last two years’ income tax returns.
- Income Proof for Non-Salaried Applicant/Co-Applicant/Guarantor – Business address proof, Last three years’ Income tax returns, Last three years’ balance sheet of profits and loss, Business licence details, TDS Certificate, Qualification certificate.
Conclusion
Compared with a loan against residential property, a loan on commercial property is costly. You have to contribute self-contribution from your side, and the tenure will be less with higher interest. Nevertheless, in a commercial property, you will get a high return on investment. So when your property is qualified for funds, utilise it and achieve more in business and life. If you are looking for an instant personal loan to meet your expenses, apply with India’s biggest loan aggregator Buddy Loan and be ensure to get a quick approval!
