When running a small or medium business in India, securing funds is often a critical challenge. As an entrepreneur, you might have heard about Loan Against Property (BLAP), but perhaps you’ve hesitated due to some popular misconceptions. Let’s go through this blog, clearing three misconceptions about business loans against property and explore why BLAP could be the key to unlocking your business’s potential.
Myth 1: Only Residential Properties are Eligible
A widespread belief is that BLAP is only available against residential properties, leaving commercial and industrial properties out of the equation. This misunderstanding can limit your funding options.
Reality Check: Financial institutions in India accept various types of properties as collateral for BLAP, including residential buildings, commercial properties, and industrial properties. This means you can easily use your shop, office space, or even a manufacturing unit that is worth the amount you need and secure the funds. The flexibility of BLAP can significantly support your business growth, utilising assets that might otherwise remain untapped.
Myth 2: Business Loan Against Property Comes with High-Interest Rates
There’s a notion that business loans against property come with sky-high interest rates, making them a burden for small businesses. This myth can deter you from exploring a beneficial financial tool.
Reality Check: BLAP typically offers more competitive interest rates compared to unsecured loans like personal loans. Because it is a mortgage loan backed by a tangible asset, lenders are more comfortable offering lower interest rates. For instance, while personal loans might carry interest rates from 12% to 24%, BLAP rates often fall between 9% and 12%. This makes BLAP a cost-effective option for securing substantial funds.
Myth 3: The Risk of Losing Property is High
The fear of losing your property can be overwhelming and might prevent you from considering BLAP. This myth often stems from the anxiety of foreclosure and financial instability.
Reality Check: While it’s true that defaulting on loan repayments can lead to the lender taking possession of the property, this scenario is generally avoidable with proper financial planning. Responsible borrowing and timely repayments significantly reduce the risk. Lenders often provide grace periods and work with borrowers to restructure the loan if financial difficulties arise.
Advantages of Business Loan Against Property for SMEs
Understanding the benefits of BLAP can further alleviate concerns and highlight why it can be a smart choice for your business.
- Lower EMIs: Due to the lower interest rates, the Equated Monthly Instalments (EMIs) are more manageable compared to unsecured loans.
- Longer Tenure: BLAP offers longer and flexible repayment tenures, spanning about seven years, which gives you enough time to manage the debt.
- Large Loan Amount: You can get a larger loan amount processed compared to other types of loans. Electronica Finance Limited offers a BLAP of up to 1 Crore.
- Tax Benefits: Interest paid on a loan against property can be eligible for tax deductions, depending on the loan’s end-use, offering further financial relief.
Steps to Ensure a Smooth BLAP Experience
To make the most of a Business Loan Against Property, consider the following tips:
- Assess Your Repayment Capacity: Calculate your monthly cash flow and returns to ensure you can comfortably meet the EMI payments.
- Choose the Right Lender: Carefully compare offers from different lenders to find the best interest rates and terms.
- Maintain a Good Credit Score: A higher credit score can help you secure better loan terms.
- Have a Clear Repayment Plan: Outline a repayment strategy that aligns with your business’s revenue cycle to avoid any financial strain.
Conclusion
Business Loan Against property can be a game-changer for small and medium businesses in India, providing the necessary funds to scale operations, manage cash flow, and invest in growth opportunities. By dispelling common myths, we can see that BLAP offers competitive interest rates, accepts various property types as collateral, and poses manageable risks with the right financial planning. Embrace the potential of your property to unlock new avenues for your business.
FAQs
Is it advisable to take a business loan against property?
Taking a Business loan against property can be a sound financial decision under the right circumstances. This type of loan is a secured borrowing option where your property serves as collateral. This security reduces the lender’s risk because if there are losses, they can potentially recover them by making a legal claim on the property. Because of this reduced risk, lenders often offer more favourable conditions for these loans, including:
Lower Interest Rates: The interest rates on business loans against property are generally lower than those on unsecured loans.
Larger Loan Amounts: The value of your property can enable you to access a larger amount of funds compared to unsecured loans.
Flexible Use of Funds: The loan can be used for various purposes, from expanding your business to funding education or medical expenses.
How do my income, budget, credit score, and existing loan balance relate to obtaining a loan against property?
When applying for a loan against property, several factors are considered to ensure you receive a high-quality service without any complications. Firstly, your income is crucial as it demonstrates your ability to meet monthly repayments and maintain your loan balance. A high credit score is equally important because it reflects your financial responsibility and creditworthiness, which can significantly influence the terms of the loan, such as the interest rate and loan amount. Additionally, professional lenders require detailed information about your financial history and current debts to assess the risk associated with lending to you. Understanding how these factors relate directly to your eligibility can help you better prepare for securing a loan against your property, ensuring a smooth and successful transaction with your service provider.
