A Business Loan Against Property (BLAP) is a secure way to meet significant financial needs by pledging your property as collateral. It’s widely used by small business owners in India to finance their operations, expand businesses, or manage unforeseen expenses. While it offers benefits like lower interest rates and flexible tenures, it’s essential to understand the fees and charges associated with it. These additional costs can impact the loan amount you owe. Being prepared for and educated about these expenses can be a great help to make informed decisions.
In this blog, we’ll cover the most common fees and charges involved in a business loan against property, helping you better understand and navigate the process.
Business Loan Against Property Interest Rate (100-150)
The interest rate is a significant cost component of a business loan against property. It typically ranges from 8.50% to 18% per annum, depending on factors like the borrower’s credit score, loan tenure, and property value. Borrowers can choose any one of fixed or floating interest rates, each with its advantages.
Fixed Interest Rates: These interest rates remain constant throughout the loan tenure, offering stable monthly payments.
Floating Interest Rates: These rates change with market conditions, which could result in either savings or additional costs over time. The risk increases with floating rates. It is better for borrowers who expect the rates to drop or the tenures are very long (think 20 to 40 years) – in which case, floating interest rates can be cheaper.
Many Non-Banking Financial Companies (NBFCs) and some banks offer competitive rates starting at 9% per annum. Always compare loan interest rates across lenders to find the best deal.
Processing Fee for Business Loan Against Property (80-100)
The processing fee is a one-time charge levied by lenders for evaluating and processing your business loan against property application. This fee typically ranges between 1% and 3% of the loan amount and is non-refundable, even if your application is rejected.
For instance, if you apply for a ₹50 lakh loan, the processing fee could range from ₹50,000 to ₹1.5 lakh. Some lenders may also add GST to this charge.
Compare processing fees across lenders to minimise your upfront costs and ensure transparency. It is likely that under certain schemes and offers run by banks and NBFCs, the processing fee is waived.
Foreclosure Charges on Business Loans Against Property
Foreclosure refers to repaying the entire loan before the tenure ends. While it reduces the overall interest payable, lenders often levy foreclosure charges, especially for fixed-rate loans.
For most floating-rate loans taken for non-business purposes, foreclosure charges are not applicable. However, for fixed-rate loans or loans taken by businesses, lenders typically charge between 1% and 4% of the outstanding loan amount.
This charge is levied because the lender incurs a loss in the form of lost interest – which they would have received on the entire tenure. Check your lender’s policies, as these charges can vary significantly.
Part-Payment Charges
Part payment charges are similar to foreclosure charges. A part payment is when you repay a portion of the outstanding loan amount to reduce the principal. While this lowers the EMI burden or the tenure, as the choice might be, lenders often impose part payment charges.
These charges usually range between 1% and 2% of the part-paid amount. Lenders may allow free part-payments up to a certain limit. For example, 25% of the outstanding amount in six months could be allowed in some cases. Part payment may be prohibited under some loan schemes for a certain period. The percentage of part payment allowed also changes with time. Understanding these terms is essential to avoid unexpected penalties.
Missing an EMI payment due to insufficient funds can result in an EMI bounce charge.
EMI Bounce Charges
Typical Penalty: ₹500 to ₹750 per instance. But it might be significantly higher in the case of some lenders.
Additional Penalties: Some lenders levy a penalty of 2% per month on overdue amounts.
Besides direct penalties, a borrower might be subjected to a reduction in their credit scores. To avoid this, ensure timely payments and maintain adequate funds in your account.
Legal Charges
Legal verification is a critical step in the business mortgage against property application process. This charge is levied since lenders conduct a thorough check of the property documents and evaluate the property’s market value.
Cost Range: ₹5,000 to ₹15,000.
This charge covers the title verification, property valuation, and document authentication processes. Some lenders include these charges in the loan processing fees, while others bill them separately.
Loan Rescheduling Charges
If you wish to modify your loan terms, such as extending the loan tenure to reduce EMIs, some lenders may impose loan rescheduling charges. Loan rescheduling is an effective way to manage financial stress but should be approached cautiously due to the additional costs involved.
Consider these expenses before opting for rescheduling:
Typical Fee: ₹500 to ₹1,000 plus taxes
Benefits: Reduces monthly EMI burden, making repayments more manageable
Conclusion
Understanding the fees and charges associated with a business loan on commercial property is crucial for effective financial planning. From processing fees to foreclosure charges, these costs can significantly impact the overall loan expense. By comparing terms across lenders and factoring in these charges, you can make an informed decision and ensure a smooth borrowing experience.
Always consult your lender for specific details and review the loan terms thoroughly before proceeding.
FAQs
What are the common fees and charges associated with a Business Loan Against Property?
Common charges include processing fees, legal charges, foreclosure charges, part-payment fees, and EMI bounce penalties.
How is the processing fee for a Business loan against property calculated?
The processing fee is usually a percentage of the loan amount, ranging between 1% and 3%. GST is added on top of this amount.
Are there prepayment or foreclosure charges on loans against property?
Foreclosure charges are not applicable for floating-rate loans used for non-business purposes but range between 1% and 4% for fixed-rate loans.
What are the legal and valuation charges for a Business Loan Against Property?
Legal charges include costs for title verification, documentation, and property valuation, typically ranging between ₹5,000 and ₹15,000, depending on the lender.
