Is It Advisable to Start Your Business with a Loan Against Property?

Posted by mymoneymantra on June 26th, 2018

Life is beyond any explanation, sometimes we don't have the money for satisfying the basic needs, while at times, we can think of establishing a business or investing our money somewhere. Be it a superstar or a millionaire, the journey of life for everybody who has achieved something valuable will go through one common milestone – the time to choose. Decision making is a difficult task, not because you have to choose between two or more things, but because of the impact of what you decide; as it may redirect the course of your life. One right decision can bring success and accolades while a wrong one can prove to be a complete disaster.

Business is full of risk, and if you hesitate from taking a chance, it is indeed not your cup of tea. A business-minded person does make a calculated risk. However, by what means one should decide if the risk is worth taking or not? Especially, if you have to Apply for a Loan Against a Property (LAP) to get going.

A new business may give good returns, but nothing is for sure. You may be an experienced professional in running one company, but your success rate for another is independent of the previous one. It is not proportional to your age, experience or education.

As a businessperson, you need to take a risk, but is it advisable to apply for a Loan Against Property? There are a lot of funding options to choose from - Personal Loans, Business Loans, a Gold Loan and many more.  Moreover, several finance companies are ready to facilitate the process for you if you need investment.

Let us discuss specific advantages of taking a loan against property:

1. It is a secured loan.

2. Loan against property has a low-interest rate.

As opposed to Personal Loan for which the rate of interest charged starts from around 10.99%, the credit against property has a starting interest rate of as low as 8.85%. However, it also depends on the amount to be credited.

3. The repayment tenure is longer in LAP.

Unlike Personal Loan for which you only have a duration of maximum five years to return the amount, here you get about fifteen years for the same. LAP buys you enough time to establish your business, reach breakeven point and earn the profit for which you worked so hard.

4. The value of the property is dependent on several factors like location, infrastructure, geographical stability and others. So if the house you possess is small, it does not necessarily mean that you will get a smaller amount for it.

5. Both the commercial or residential properties fit well for a LAP (Loan Against Property).

There are enormous possibilities with a loan against property. However, you need to know a few things before taking the debt of any kind. Firstly, banks offer only up to 90% of the total value of the property (known as Loan-to-Value or LTV). If your property is of Rs. 1 Crore, you will get a maximum of about Rs. 90 Lakhs. Secondly, if you fail to repay the debt taken, you may lose the ownership of your property. Since this applies to every credit you receive, it is not a significant setback for those who understand the basics of a loan. Lastly, loan against property is available mostly to people who already have a business and wish to start another. Those who want to start afresh may get disappointed.

Loan Against Property has additional benefits over other loan options. The lender calculates the valuation for a credit against the property at low-interest rate after analyzing your repayment capacity, business model, flow of cash, market conditions and risk involved.

If the market is unstable, you will need to demonstrate a high potential for repayment of the debt.

What all you need for a LAP?

1. Proof of ownership of the property.

2. KYC and other legalities.

3. Technical clearance and authentication

4. Road-map of the business.

5. Projections and plans for generating revenue.

6. Feasibility study of the industry.

7. The credit history of the applicant.

The requisites mentioned above ensure a smooth flow of the procedure. When proved eligible, and after satisfying all the criteria, you also would also know how prepared you are for your next big venture. There is nothing wrong with taking or applying for a Loan Against Property; instead, it is a brilliant idea to expand your horizons, but you need to analyse the market as well as your plan before you decide to hit the market.

Also Read: APR: Meaning and Important Facts

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