Expanding a business requires capital — whether it’s for upgrading infrastructure, purchasing new equipment, hiring staff, or expanding operations to new locations. While there are multiple financing options available, a Business Loan Against Property (BLAP) is a viable solution for business owners looking to leverage their assets to fuel growth. By using commercial or residential property as collateral, entrepreneurs can secure substantial funding at lower interest rates compared to unsecured loans.
Let’s explore the value a business loan on commercial property can add to business expansion in India.
What is a Business Loan Against Property (BLAP)?
A good option in the secured mortgage loan category, a business loan against property is one where an individual or a business pledges their residential or commercial property to avail funding from a financial institution while continuing to use it. The loan amount sanctioned depends on the property’s market value, the borrower’s creditworthiness, and the lender’s policies.
If you own a commercial property — a shop, office, or factory space — but need substantial funds to scale your business. Rather than opting for an unsecured business loan with higher interest rates, you can leverage your property to secure an LAP. This type of loan is a popular financing option among Indian entrepreneurs due to its longer tenure, lower interest rates, flexible repayment terms, and high loan amounts.
Features of a Business Loan Against Property
BLAP offers a more accessible and cost-effective way to secure substantial capital. Whether you’re using a commercial property or a residential one as collateral, knowing these key features can help you assess if this loan aligns with your expansion goals.
- Collateral-based: Your property is pledged as security for the loan
- Higher loan amounts: Depending on the property’s value, you can access substantial funds
- Lower interest rates: Compared to unsecured loans, LAP comes with relatively lower interest rates
- Flexible repayment tenure: Repayment periods can range from 10 to 20 years, reducing EMI burdens
- Continued ownership: While the property is mortgaged, you retain ownership and can continue using it
- Versatile usage: Funds can be used for various business needs, from working capital to expansion plans
Benefits of Business Loan Against Property Being Used for Business Growth
A Business loan against property provides the financial flexibility to fund crucial business growth initiatives without disrupting day-to-day cash flow. Unlike other loans, which may have restrictions on fund utilisation, LAP gives business owners the freedom to allocate funds based on their specific needs.
Here’s how a Business loan against property can help:
Scaling up operations
Expanding a business often involves acquiring larger office spaces, opening new outlets, or upgrading production units. LAP provides the necessary capital to execute these plans without disrupting cash flow. Say a textile manufacturer in Surat wants to open a second production facility to meet increasing demand. A business loan against property can help them access funds based on the existing warehouse’s value.
Purchasing new equipment
Many businesses require advanced machinery or updated technology to stay competitive. LAP can be used to finance high-cost equipment purchases. For instance, a printing press owner in Mumbai wants to invest in modern offset printing machines to cater to large-scale orders. By leveraging a mortgage against a property, he secures funds to make the purchase without straining working capital.
Increasing working capital
Sometimes, businesses face short-term cash flow issues that can hinder day-to-day operations. LAP provides liquidity to manage operational expenses, pay suppliers, and invest in marketing. The example of a retail business in Bangalore that is experiencing peak-season demand but lacks the working capital to stock up on inventory. Using a business loan against property, they secure funding and maximise sales during the season.
Expanding into new markets
Breaking into new markets requires significant investment in branding, logistics, and hiring. LAP ensures that funds are available to seize expansion opportunities. A restaurant chain in Delhi can plan to enter tier-2 cities like Jaipur and Chandigarh with a loan against property that can provide the capital needed for marketing and new location setups.
Debt consolidation
Businesses juggling multiple high-interest loans can use LAP to consolidate debt, reducing interest outgo and streamlining repayments. For instance, a pharma distributor that has multiple business loans with varying interest rates can take a loan against property to consolidate debts into one manageable EMI at a lower rate.
Benefits of a Loan Against Property: How Can It Help You Expand Your Business?
A Business loan against property offers unique advantages. Unlike equity funding, where you dilute ownership or short-term loans that come with financial strain, LAP ensures long-term financial stability. Understanding these benefits can help business owners leverage their property’s worth wisely:
Lower interest rates compared to unsecured loans
One of the biggest advantages of a Business loan against property is its significantly lower interest rate compared to unsecured business loans. Since the loan is backed by a physical asset — your commercial or residential property — lenders face less risk and can offer more competitive interest rates. This results in lower EMIs, making repayment more manageable over time.
For example, an unsecured business loan might carry an interest rate of 14-20% per annum, whereas an LAP could be available at rates starting as low as 8-12%. This difference can translate into substantial savings over the loan tenure.
Longer repayment tenure
Unlike short-term business loans that require repayment within a few years, a loan against property offers extended repayment tenures of up to 15-20 years. This is particularly beneficial for businesses looking for stable financial planning. Longer tenures mean lower monthly EMIs, reducing the burden on cash flow and allowing businesses to reinvest profits into growth rather than rushing to clear debts. This flexibility enables businesses to allocate resources efficiently without facing financial stress. Some lenders also allow borrowers to prepay the loan with minimal or no penalty, providing even greater control over financial planning.
Access to large loan amounts
A major advantage of LAP is the ability to secure a large loan amount based on the market value of the pledged property. Depending on factors like location, type, and condition of the property, lenders typically offer loans ranging from ₹10 lakh to several crores. This makes LAP an ideal financing option for businesses planning large-scale expansion, acquiring new assets, or meeting high working capital requirements.
For instance, a business that owns a prime commercial property valued at ₹5 crore may be eligible for a loan of ₹3 crore or more, depending on the lender’s Loan-to-Value (LTV) ratio. This level of funding is often not possible with unsecured loans, which have strict caps on borrowing limits.
Unrestricted usage
Unlike some business loans that come with predefined usage restrictions — such as equipment loans that must be used for machinery purchases — LAP offers complete flexibility. The funds can be used for a variety of business needs, including working capital, expansion, purchasing raw materials, hiring staff, marketing campaigns, or even repaying existing high-cost debts.
Retention of property ownership
Selling a property to raise capital might seem like a viable option, but with it, the owner loses a valuable asset permanently. With LAP, as a business owner, you can unlock the financial value of your property while still retaining ownership. This means that even as the property is pledged as collateral, its value continues to appreciate. Once you repay the loan, the property can be used again as collateral for future financing needs. This ensures that businesses do not have to part with valuable real estate just to meet short-term financial goals.
Conclusion
A Business loan against property is a powerful financial tool for businesses seeking expansion without compromising daily cash flow. Whether it’s scaling operations, buying equipment, boosting working capital, or entering new markets, LAP offers the flexibility, affordability, and convenience needed for business growth.
Want to unlock your business’s potential? Check your loan eligibility now and apply easily through the Electronica Finance Limited Clik App!
FAQs
What are the advantages of using property as collateral for a business loan?
Using property as collateral for a business loan provides the following advantages:
- Access to substantial funding while keeping borrowing costs low.
- Lower interest rates compared to unsecured loans
- Longer repayment tenures and manageable EMIs
- The funds can be used for any business needs, such as expansion, equipment purchase, or working capital
- Business owners retain ownership of their property
Is it safe to take a loan against property for business expansion?
Yes, taking a Business loan against property (BLAP) for business expansion is generally safe if managed responsibly. Since the loan is secured by property, it comes with lower interest rates and longer repayment tenures, reducing financial strain. However, the key to ensuring safety lies in assessing your repayment capacity — having a stable revenue stream and a clear financial plan can prevent the risk of default.
How much loan can I get against my property to expand my business?
The loan amount you can secure against your property for business expansion depends on the lender’s assessment of its market value. Typically, financial institutions offer 50% to 75% of the property’s current worth, but factors such as location, type of property (residential or commercial), and the borrower’s financial profile also play a role. Some lenders may offer higher funding if the property is in a prime area or if the business has strong financials. Checking with multiple lenders and using a business loan against property calculator can help estimate the eligible amount.
Can I use the funds from a Business loan against property for any business purpose?
Yes, the funds from a Business loan against property can be used for various business needs, including expansion, inventory purchases, equipment upgrades, and working capital management.
