Corporate Loan Against Property: How Indian Businesses Can Unlock ₹1 Crore+ from Commercial Assets

Businesses need money to make more money, and when they need to invest in their machinery, the funding options available include unsecured business loans at high interest rates, selling machinery or assets, or an investor who will ask for a share of your company. What they don’t realize is that they own an asset that is sitting idle from the financing point of view: their commercial property. That can be a factory unit, an office floor, a warehouse, or a shop. 

A corporate loan against property is an excellent way to turn that asset into working capital. The business borrows funds against the property while they continue occupying and using it. In such a loan, the property becomes collateral or security for the loan.

For businesses seeking funding for purposes like capacity expansion, bridging working capital, and consolidating debt, corporate LAP is a good way to get money without giving up equity. The key is to understand the eligibility, documentation, interest rates, and the difference between corporate LAP and a standard business loan.

What is Corporate Loan Against Property?

A corporate loan against property is a secured business loan where a company pledges commercial real estate as collateral. In exchange, the lender provides the borrower with a lump-sum credit facility.

The arrangement of a corporate LAP looks like this: 

• The lender registers a charge on the property. 
• The borrower continues to own, occupy, and operate from the property. 

A corporate LAP is different from a retail LAP, which is often taken by individuals for their personal needs. 

The Loan-to-Value, or LTV ratio of corporate loan against property can be anywhere between 40% and 75%. For example, if you want to borrow ₹1 crore from a lender offering 70% LTV, your property’s market value must be roughly ₹1.43 crore. However, if the lender is offering 55% LTV, the property’s value should be higher for a ₹1 crore loan, that is, roughly ₹1.82 crore. 

How is the Final Loan Amount for a Corporate LAP Calculated?

The LTV ratio is only one of the factors affecting corporate LAP amount. The other things lenders weigh include: 

• Property Value: An independent valuation of your property is done at the time of application. 
• Repayment Capacity: Aspects like your income, business cash flow, and existing EMIs are also considered. 
• Credit Profile: Your financial reliability is assessed by looking at your CIBIL score, repayment history, and outstanding liabilities. 

Why Apply for a Corporate LAP: The Benefits

Getting a mortgage loan against commercial property offers you many benefits, such as:

• No Usage Restrictions: 

Generally, there is no end-use restriction, so the borrower can use the acquired funds for whatever purpose they prefer. However, some lenders may impose restrictions on certain purposes. 

• High Loan Amount: 

The loan amount provided by a corporate LAP is very high; the highest possible LTV by lenders is 75% of your property’s value. 

• Long Repayment Tenure: 

The repayment tenure of loan against commercial property can go up to 15 years. This usually depends on the risk profile of the borrower. 

• Flexible Eligibility: 

The eligibility prerequisites for this loan are flexible, with the ability to combine individual and business income and no rigid requirement of a guarantor.

• Low Interest Rates: 

The interest rates for a corporate LAP are significantly lower than those for unsecured loans. This is because collateral is involved in a corporate loan against property. 

• Affordable Processing and Foreclosure: 

The processing and foreclosure charges for a corporate LAP are comparatively lower than alternative financing solutions like personal loans, unsecured business loans, and short-term corporate credit lines. 

• Borrower’s Ownership: 

Despite the property being collateral for the loan, its ownership stays with the borrower. So, they can continue to use the property throughout the loan tenure. 

Eligibility Criteria for a Corporate Loan Against Property in India

The eligibility criteria for corporate LAP in India are: 

• The corporate LAP is only applicable for borrowers aged between 25 and 65 years. 
• The borrower should be an Indian national with a steady and verifiable income, which can be demonstrated via bank statements, ITR, or salary documents.
• The borrower should have ownership of a fully constructed and litigation-free commercial property for loan.
• Ideally, the CIBIL score of the borrower should be 700 or above for better pricing. 
• Many lenders require you to have at least 2 to 3 years of business operation. 
• The borrower’s existing EMIs should leave an adequate surplus amount for a new LAP repayment. 

Documents Required for Loan Against Commercial Property 

Just meeting the eligibility criteria is not enough; you also need to produce the right paperwork for a loan. The documents required for corporate LAP include: 

• Identity and address proof: 
  • PAN,
  • Aadhaar, or 
  • Passport 
• Income proof:
  • Bank Statements, and 
  • ITR Filings 
• Property documents:
  • Title Deed,
  • Occupancy Certificate, and
  • Buyer Agreement
• Business documents:
  • Business Registration Proof, 
  • Partnership Deed, or 
  • Incorporation Certificate 

Interest Rates on a Corporate Loan Against Property 

The rate of interest for a loan against commercial property is lower than unsecured loan options for one simple reason: the lender holds a tangible asset as security. But how much are the interest rates? They typically range from 8.75% to 14.00% per annum for corporate borrowers and MSMEs. 

Several factors affect the interest rates of corporate LAP. These include: 

• CIBIL Score: The higher the borrower’s CIBIL score, the better their creditworthiness, and the lower the interest rate. So, a borrower with a 750+ CIBIL score is in a better position to negotiate the interest rate and terms of corporate LAP than one with a score of 670. 

• Loan-to-Value Ratio (LTV): Lower LTVs mean better interest rates because the borrower is getting less of the asset’s full market value.

• Loan Tenure: A longer loan repayment tenure usually means a higher interest rate. This is because the risk is extended over a longer timeframe. 

• Property Type and Location: Commercial and industrial properties situated in prime locations usually attract a better valuation than rural properties. 

• Existing Liabilities: For borrowers with higher existing EMIs, the repayment capacity is reduced, which means that the interest rates are higher for them. 

Difference Between Corporate LAP and Unsecured Business Loans

Here’s how corporate loans against property are different from unsecured business loans:

Credlix Offers Corporate Loans Against Property for Your Growth 

Most borrowers who opt for traditional loans follow a common path: they approach a bank, the property qualifies, the documentation is in order, but the application may still move slowly. At Credlix, corporate lending is approached differently from retail lending. Loans go up to ₹25 crore against industrial and commercial assets, with high LTV on industrial property and tenures extending to 15 years. 

Credlix accepts commercial office buildings, manufacturing units, industrial sheds, revenue-generating leased assets, and warehouses as collateral for corporate loans against property. Being an RBI-licensed NBFC platform, Credlix provides you with the funding you need for your working capital, business expansion, machinery purchase, or any other requirements. 

FAQs

What is a corporate loan against property and what are its benefits?

A corporate loan against property is a secured business loan where a company, LLP, or promoter gets lump-sum funding by pledging their commercial real estate as collateral to the lender. Since the loan is secured, the interest rates are favorable, and the ownership and use of the premises are still retained by the borrower. The benefits of corporate LAP extend to helping your business grow through machinery purchase, working capital bridging, or capacity expansion. 

How much loan can I get against commercial property in India?

The loan amount you will get depends on the lender’s LTV on commercial property. This is typically between 40% and 75%. For example, at 70% LTV, a property valued at ₹1.43 crore supports a ₹1 crore loan. However, the same property allows you to borrow only ₹85,80,000 (roughly 86 lakhs) at an LTV of 60%. Other factors affecting corporate LAP amount include the borrower’s repayment capacity and creditworthiness (CIBIL score).

What types of commercial property are eligible for a corporate loan against property?

The eligible collateral for corporate loans against property includes commercial office buildings, warehouses, revenue-generating leased assets, industrial sheds, and manufacturing units. The property pledged as collateral needs a clear title, a valid occupancy certificate, and should be fully constructed and litigation-free. Vacant lands or properties without completion approvals are either not accepted as security for a corporate LAP, or if they are, they attract a very low LTV.