Power Your Business Expansion with a Smart LAP Strategy

Growing your business requires substantial financial resources. Whether looking to scale operations, invest in new equipment, or tap into new markets, you will need funding support. That is where a business Loan Against Property (LAP) comes in handy. This financial instrument leverages the equity in your property to secure a loan with terms and conditions far better than traditional business loans.

Let's discuss why you should consider LAP and what strategies you should follow for smooth business expansion using this loan product.

Reasons to Consider a Loan Against Property for Business

Here is why you should consider a business loan against property:

Collateral Advantage

Unlike any other secured financing, such as a gold loan or one backed by investments, LAP for business is secured by valuable commercial real estate. These properties not only appreciate significantly but also have the potential to generate passive income. This reduced risk of loss in the event of default results in a lower interest rate.

Substantial Funding

Lenders offer funding of up to 75% of the current market value of the property you are mortgaging. For example, if you have a property worth ₹1 crore, then depending on your credit profile, business turnover, and net profit, you can obtain up to ₹75 lakhs. If you are applying with Hero FinCorp Limited, you can get up to a 75% loan-to-value ratio or ₹7.5 crores, whichever is lower.

Longer Repayment Tenure 

A loan against property for commercial or personal purposes comes with a repayment tenure of 15 years. The longer the repayment period, the lower your equated monthly instalments (EMIs) will be. However, it is recommended that if you have decent cash flow in your business, instead of unnecessarily stretching your EMI, choose a shorter tenure and save a significant amount on the interest payable.

Tax Benefits

While the property-backed loan does not offer direct tax benefits, using it for business purposes allows you to claim deductions for loan interest payments, processing fees, and documentation charges under section 37(1). Ensure you record these charges under the expense section and keep loan documents detailing the expenses' breakup to avoid any future discrepancies.
Also Read :  Features and Benefits of Loan Against Property

Easy Prepayment 

You can prepay your loan partially or completely before the binding due date, provided that you have successfully paid the EMI for a minimum of six months from the date of obtaining the loan. This allows you to save on the interest component and maximise your net profit from the business.

Retain Ownership

When you apply for a secured business loan against property, you don't have to transfer ownership to the lender. You can continue to use the property or even modify the structure without prior permission from the lender. However, the lender only has conditional ownership and can take over the property if you default.

Best for Startups

Securing funds through a business loan will be the most challenging task if you have just started your new venture. The reason is that your business has yet to achieve profitability, and since there is no loan in your company's name, lenders have no means to track your business credit behaviour. Additionally, most lenders require a minimum business vintage of two years for a traditional business loan. This is where you can use your personal credit history that you have built over the years and leverage your real assets as collateral to secure funds for your startup.
Also Read :  Apply Loan Against Property For Business

Best Business Loan Against Property Strategies for Business Expansion

A smart strategy ensures that you don’t just access funds, but use them to maximise return and minimise financial stress. Here are some loan against property strategies to follow: 

Assess Your Requirement

Before you apply for a loan, take your time and map out your expansion plan in detail. Estimate how much capital you will need and for how long. Consider all your existing and future costs revolving around infrastructure, equipment, staffing, marketing, and licensing.

Strictly avoid borrowing more than necessary. Remember that over-leveraging can create repayment pressure and hurt your credit rating.

Match Tenure 

Don't blindly choose your loan repayment tenure. If your expansion strategy is expected to generate returns within 3–5 years, align your LAP repayment plan accordingly.

As mentioned earlier, opting for a shorter repayment tenure increases your EMI but significantly reduces your interest expenses. For instance, if you apply for a ₹70 lakh loan approved at a 12% interest rate, with a 10-year repayment tenure, your EMI will be ₹1,00,430, and the total interest payable will amount to ₹50,51,600. Conversely, opting for a five-year loan tenure will increase your EMI to ₹1,55,711, but reduce your interest outgo to ₹23,42,660.

Also Read :  All About a Loan Against Property Against Immovable Commercial Assets

Compare Lenders Thoroughly

Different lenders offer varying interest rates, processing fees, and loan-to-value ratios. Some may also impose prepayment penalties or hidden charges. Look beyond the headline interest rate and thoroughly evaluate each option.

To simplify the evaluation process, you can use loan aggregator websites. These platforms provide detailed comparisons of LAPs offered by different lenders on a single webpage.

Create a Solid Repayment Plan

Missed EMI payments can hurt your credit score and even result in the lender seizing your property. So, factor EMI payments into your financial planning.

Set up an emergency fund or contingency reserve to cover at least 3–6 months of EMIs in case of unforeseen slowdowns. If your business income is seasonal, choose a structured EMI plan (offered by some lenders) where payments vary as per the income cycle.

Also Read :  What Type of Property Can Be Used for a Loan Against Property?

Conclusion

A smart business loan against property strategy can give access to the capital your company needs to grow without giving up equity or ownership. From flexible tenures and higher loan amounts to tax benefits and easier eligibility, you cannot overlook LAP benefits. By assessing your needs, comparing lenders, and planning repayments wisely, you can fuel your business expansion confidently and sustainably, using your property to create long-term value and financial strength.

Planning to boost your business? Turn to Hero FinCorp Limited and get funding anywhere between ₹20 lakhs and ₹7.5 crores, with interest rates starting from 11% per annum. You can enjoy flexible repayment options tailored to your business needs, along with a quick and hassle-free approval process.

(Note: The interest rates and loan terms mentioned are approximate and may vary at the time of application.)

Frequently Asked Questions 

Why should you opt for a shorter tenure for a loan against property?

If your budget permits, a shorter tenure lowers the total amount of interest payable. For example, if you apply for a ₹60 lakh loan and are approved at 11%, the interest payable for a 15-year tenure loan will be ₹62,75,280, whereas for a 10-year tenure, the interest payable would be ₹39,18,000.

What types of properties can be used for LAP?

You can pledge self-occupied or rented residential, commercial, or industrial property. But make sure the property you are mortgaging has a clear ownership title and meets the lender’s valuation and documentation requirements.

Can LAP be used for working capital needs?

Absolutely. LAP can help meet various business needs, including working capital requirements, supplier payments, payroll, or even debt consolidation.

Are there any risks involved with LAP?

Yes. The primary risk is property repossession if repayments are not made on time. Since the loan is secured by your property, defaulting on EMIs can lead to legal action or foreclosure by the lender.

What documents are required for a LAP application?

Documents typically include identity and address proofs, income statements, bank statements, property papers, and business financials.
 

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader’s discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.