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28 Sep
  • Editorial Team

For the SME sector in India, funding is never an easy process even though it contributes significantly to nation’s GDP. And yet every business requires funds for growth, for operations and for emergencies. And that is why Loan Against Property has emerged as a popular option. On one hand, it allows the business owner to easily borrow a large sum of money on a flexible tenure, keeping his/her property as a collateral, and on the other hand, the bank has the security of a property in case the borrower defaults on payments.

Let us take a look at why this might be a great option for business owners looking to expand, buy new plant machinery or buy a new commercial property.

Features of Loan Against Property

  1. Easy documentation: Documentation is comparatively easier and straightforward when it comes to LAP since the eligibility criteria is limited. Because of this, the processing of the loan is quicker. Eligibility for availing this loan is mainly determined by the value of the property that is being mortgaged as well your income, repayment capacity, business model, cash flow projections etc. 

  2. Speedy approvals: LAP is a secure way of lending. And that makes it good news for lenders who view it as a low risk loan. In case of a bad debt scenario, where the borrower cannot repay the amount, his/her collateral can be sold off at any point of time to recover the lent amount. This is why LAP approvals are given in a shorter span of time.

  3. Flexible repayment options: The loan repayment tenure option is more flexible in case of a LAP. The loan can be repaid back within a range of 10-15 years. The longer the tenure, lesser would be the amount of EMI. Likewise, the shorter the tenure, the lesser would be the amount of interest paid.

  4. Residential as well as commercial property as collateral: The property to be kept as mortgage or collateral can be a residential house or a commercial building or even a piece of land.

Why to avail Loan Against Property for Businesses?

  1. Easy capital for a startups: Start-ups usually need a lump sum amount in the initial stages. LAP has a scope to offer a higher percentage of market value of the mortgage property. So it’s easier to get a large amount at one go.

  2. Expansion of existing business: If you are looking to expand the business, then you would need a loan which can be availed in a shorter time period so that you can invest as soon as possible. LAP does not take much time to get approved so it’s one of the options to consider while planning for expansion.

  3. Availability of higher loan amounts: Since this is a secure loan, financial institutions generally offer a higher loan to value ration. This can be as high as 65% of the mortgaged property’s market value for LAP. Hence, it’s the perfect solution for SME businesses which are looking for higher funds with low interest rates.

  4. Flexible repayment tenures: LAPs generally offer more flexibility in repayment tenures. A borrower is offered anywhere between 5 years to 15 years for repayment of the loan, a time period which is much higher when compared to other loans. If you are looking for repaying a smaller amount per month then you can choose a larger tenure and if you are looking for not paying the interest amount for a long period then you can choose a shorter span to pay off your loan.

Eligibility and Documentation:

LAP can be availed by salaried persons, businessmen and self-employed professionals.The Eligibility Criteria is as follows:

  1. Applicant’s age should be minimum 25 years and maximum 55 years

  2. A salaried individual who is a permanent employee of a company can also apply for a loan against property

  3. The loan amount that you are looking for must not exceed to the value of the property

  4. The business should be in existence for minimum 3 years (in case of businessmen)

  5. Your business should have its Income Tax returns filed for at least for the past one year

The lists of documents that must be submitted by the applicant are as follows:

  1. KYC documents & Address Proofs

  2. Relevant financial documents related to property like electricity bill, property documents, sale deed if any

  3. Photo ID like Aadhaar card, passport-sized photograph, PAN card or Voter ID

  4. Income Proofs for salaried people : Three months salary slips (for salaried people), Employee Certificate, Job Appointment Letter and Experience letter & one year’s bank statement

  5. Income Proofs for Businessmen : Income Tax Returns, Proofs and Registration Certificates

For SMEs looking for quick and high-value loans, LAPs are ideal since they offer multiple benefits that are particularly aligned with the needs of business owners. Ideally LAPs should be used for slightly long-term investments for best results. If proper documentation is available, especially for the property to be mortgaged, then LAPs are the ideal way of sourcing funds for SMEs.

Did You Know


The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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