India’s economy is growing fast. In recent years, the demand for commercial real estate has increased nationwide. Many people are interested in getting a loan against commercial property, but they must be aware of the procedure. Loans for residential properties have different application procedures and qualifying requirements than loans for commercial property. Therefore, understanding the fundamentals of commercial loans is critical before deciding to apply for a loan.
What is a Commercial Property Loan?
By financing your commercial property, you may get a substantial amount of capital through a commercial property loan. You might utilise it for any other activity or your own business. For example, you might choose a commercial property loan if you need plenty of reasonable funding. On the other hand, you might use the approved money to acquire expensive machinery or grow your company. The commercial property loan interest rate is also significantly lower than different types of loans. Occasionally, lenders also characterise loans for buying commercial real estate as commercial property loans.
How does it work?
Commercial properties can be classified into two categories: office spaces and retail establishments. In addition, the categories of ready-to-move properties and under-construction segments are added to these. Like most loans, a commercial real estate loan needs the mortgage of a solid asset to be approved. Most often, a commercial property rather than a residential one is favoured as collateral. It is because it gives the lender a sense of protection from defaulters.
Benefits associated with Commercial Property Loan
- Reduced interest rates: Commercial property loan interest rate is lower than personal loans since the loan is considered a secured loan.
- Significant loan amount: Compared to other loan types, such as personal or business loans, you can obtain a more substantial loan with a commercial property loan. It is because commercial buildings are valued higher since they are assets that generate income.
- Shorter EMI: As opposed to personal or company loans, which lenders may provide for up to 7 years, you may choose a shorter EMI.
- Property Value growth: Investment in commercial real estate can help you grow your net worth when the property’s value rises over time due to local demographic and infrastructure changes.
- Tax benefits: Section 24 allows you to deduct interest payments toward your business property loan EMIs from your taxable income. Long-term, you may save a sizable sum of money by doing this.
- Rental Income: Rent from a business property can be used to pay off your EMI obligations.
Eligibility Criteria
- At the time of the loan application, the customer’s age cannot exceed 50 for salaried employees and self-employed professionals.
- Partnership businesses and corporate entities must have been around for a minimum of three years before the application date to get a loan against commercial property.
Required Documents
| Salaried | Self-Employed |
| Application form and passport-size photo | Application form and passport-size photo |
| Proof of Age (Passport, PAN Card, etc.) | Proof of Age (Passport, PAN Card, etc.) |
| Residence Proof (Telephone Bill, Driving License, Ration Card, etc.) | Residence Proof (Telephone Bill, Driving License, Ration Card, etc.) |
| Educational qualification certificate | Educational qualification certificate |
| Three months’ salary slip | Proof of Business and a Business profile |
| Form 16 | Last three years of IT returns with certified Profit & Loss account sheets. |
| Salary Account Bank statement of previous six months | Salary Account Bank statement of the last 12 months |
| Processing fee cheque | Processing fee cheque |
| Approved plan and photocopy of property documents | Approved plan and photocopy of property documents |
Factors affecting Commercial Property Loan Application
Increase the likelihood that your application for a loan against commercial property will be accepted by knowing what the lender will look for when you apply for it. Here are some elements that may influence a loan request for commercial property:
- An individual/business’ financial stability
- Approvals
- Technical evaluation
- Builder Reputation
- Area
- Collateral security
Bottom Line
Loan against commercial property offers the chance to obtain financing from different lenders and take advantage of the benefits that accompany it—before deciding, completing your homework and weighing your possibilities is crucial.