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02 Sep
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According to recent industry reports, the number of entities taking loans against property (LAP) is set to grow annually by 22% and double by 2019 with the market touching around Rs 5 lakh crores. Better than personal loans because of multiple aspects including ease of access and competitive ROI; LAP is becoming a preferred choice among Indian businesses. Non-banks (NBFCs and Housing Finance Company’s) are disbursing almost half of this LAP market. They are the front runners because of their ability to innovate and provide products on customized cash flow assessment and faster turnaround time.

So let’s understand what is LAP, the reasons for its growing popularity and how to apply for one.

What is a Loan against Property?

Loan against property is given when you pledge your property as a security against the loan. In this case, first, the market value of your property is accessed based on certain factors. Following this, your loan repayment capacity is assessed via various sources, including your credit bureau score etc. Your final loan amount, which mostly varies between 50-70% of the property value, is then determined on the above factors. This type of loan is called a “secure” loan as you are giving a guarantee using your existing property.

Is LAP for everyone?

Some lenders like offer their LAP product exclusively to an organization or to the promoter of the organization. Also, the loan is given only for professional purposes, like business expansion or meeting working capital needs.

LAP is a great resource when you are on the verge of business expansion and are looking for funds to carry things forward. In other cases, LAP is also initiated to bridge capital expenses and acquire critical capital that can get you the much needed investment to grow your business.

What are the advantages of LAP?

Acquiring finance for running a business, more often than not, is quite an uphill task for growing companies. The process is lengthy and filled with risks. You may end up chasing investors or financiers for a long time, though after extended due diligence they may decide not to provide the required finance at all. This means a lot of leg work and precious time away from running your daily operations, and instead of financial support a ‘do or die’ situation arises for your business.

To de-risk yourself, from this situation, why not utilize an existing asset which can be your sure shot path to getting funds. Hence, LAP is fast becoming the preferred choice due to it being a quick and assured financing route.

LAP is also an excellent debt consolidation tool where you can convert an existing high interest loan to a low interest one. LAP loans, starting from low interest rate of 12%, also offer long tenures of up to 15 years. Thus businesses can consolidate their small, yet high interest rate, loans by paying them off through the funds raised through a single low priced, hassle free LAP loan. Thus, you bring down your overall cost of funds, improve your margins and at the same time deal with only one financier!

What types of property can you use for LAP?

Most financiers accept both residential and commercial properties as collateral. You can pledge an owned property that you are using yourself or one that you’ve rented out. In other cases, you can also use a piece of land, farmhouses, hotels and even nursing homes.

How to apply for a Loan against Property?

Going for a LAP is often a decision one has to review a few times, a common apprehension being the loss of property, in case of a default on your loan commitments. But once you weigh down the benefits compared to other loans, it’ll be an easier decision.

Hero FinCorp

To apply for your loan, choose a trusted partner like Hero FinCorp, who has a reputation of excellent customer service – after all, this is an important criterion for an association that can last over a decade.

Once you fill the form, your loan relationship manager will get in touch with you with a detailed explanation of the product, and document requirements. These include a photograph, residence proof, proof of business, qualification certificates, last three year’s business profile, profit/loss balance sheet, tax return statements, last six months’ bank statement and processing fee cheque etc. It’s best to have these handy before you apply to expedite the process.

Luckily, if you don’t have sufficient income proofs, you may still be eligible as various surrogate programs can be leveraged to calculate your eligibility. This includes your previous loan track records, bank balance, the gross profit method for industries with high turnover, an estimation of liquid income and some other methods.

So go ahead and apply with a lender who is willing to be your financial partner in your quest to a better life.

Did You Know

Disbursement

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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