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Business Loan: Overview
Majority of the business loans are financed against security of a property. In case you do not own any property you can still get a loan on the security of any other financial movable asset like bank fixed deposit, National Saving Certificates, Shares of approved listed companies, units of mutual funds scheme and insurance polices with good surrender value. However majority of the business loans are financed against security of an immovable property. Amongst immovable properties the lenders are more comfortable in lending against residential or commercial properties. The lenders are normally reluctant in lending against any plot of land due to issues like encroachment of such plots.
Business loans against property in India are provided by banks and NBFC both. The rate of interest charged by banks are relatively lower than those charged by NBFC. These business loans against property are generally taken for the purpose of working capital needs of the business. In some of the cases the immovable property is secured and provided as collateral for the term loans taken for the purpose of capital expenditures like construction of factory building or purchase of plant and machinery.
These loans against property are generally secured by equitable mortgage of the property where the borrower deposits the original title documents with the lender without much of the documentations.
In case of loans against property, the lender normally gets the valuation of the property done to arrive at the valuation figure of the property. The lender will normally lend you around 50% of the value of the property so arrived at by the valuer.
While deciding on the loan amount eligibility the lender will always evaluate your ability to service the business loan taken so the value of the property only is not relevant for such loans. So your eligibility to get these business loans will also be constrained by your income. Normally the lenders grant loans equal to your two years income subject to a margin of 50% of the value of the property.
While granting the loan you need to provide certain document so as to comply with the KYC (Know your customers) norms. This includes your address proof, proof of your income in the form of copy of return of income. In case of salaried employees the form no. 16 will be sufficient.