India is home to around 39,000 start-ups as of 2018. The rising number has made this country the second-largest hub for such businesses.
However, the Indian start-up scenario still lacks considerably than those of the US, the UK, and China. Back in 2018, these businesses received only $11 billion in funding. Whereas, this number was $84 billion in the US.
Securing funds has become a significant challenge for these entities. Start-ups may also not be eligible for business loans as lenders sanction these only to existing firms with substantial business vintage.
One of the options is a loan against property for business start-ups or start up loan on property. These are mortgage loans sanctioned against an asset. The lender gains a transfer of an interest of the property till completion of repayment.
How Does A Loan Against Property Work?
The loan amount you avail depends on the market value of your house. Usually, you can avail up to 80% of your property price from a lender. Misrepresenting the property value is one of the things to avoid when you apply for a loan.
Your property is mortgaged with the financial institution until the repayment is complete. It will be seized and liquidated if you default on the loan.
How To Avail A Loan Against Property For A Start-up?
A high credit score of 750 is not mandatory to avail these loans since they are secured. However, a loan against property is processed only with the following:
- Provide The Necessary Documents
The loan against property documents required to apply generally include:
- KYC document (Aadhaar or PAN).
- Address proof (Latest electricity bill, telephone bill, municipality tax, any KYC document with your permanent address).
- Latest salary slips.
- Income tax returns.
Along with the above, you also have to submit photocopies of the property you are mortgaging.
- Fulfill The Eligibility Criteria
The loan against property eligibility criteria you have to fulfill include:
- Age between 33 and 58 years.
- Employed with a public/private company or MNC.
- Age between 25 and 70 years.
- Self-employed with an income.
Also, you have to be a resident of India to apply for a loan against property for business start-up.
What To Do Before You Apply For A Loan Against Property?
Keeping the following points in mind is necessary before you apply for a loan:
- Lower Your Monthly Debt
Lenders conduct a debt-to-income ratio or Fixed Obligation to Income Ratio (FOIR) to compare your monthly debt with your income. They will give you more preference if your fixed obligations are not more than 40% of your income.
Lowering your monthly obligations will make you more eligible for a loan against property in India. You can pay your EMIs without any difficulty with a low FOIR.
- Calculate Your Emis And Determine The Right Tenor
Loans against property are long-term, and their tenors are also extended. Hence, it is necessary that you choose the right tenor as your EMIs and total payable interest depend on it.
A longer tenor makes your EMIs affordable but increases the total interest you pay on the loan. Shorter tenors will do precisely the opposite.
Consider an example where you have taken a loan against property of Rs. 40 Lakh at 10% rate of interest. The EMIs you pay on a 15-year tenor is Rs. 42,000 (approx.) while that for a 10-year tenor is Rs. 52,000 (approx.). Similarly, the total interest payable is around Rs. 37 Lakh in the first case and around Rs. 23 Lakh in the second.
Use a loan EMI calculator to calculate your EMIs and determine the correct tenor before you apply for a loan against property for business start-up.
What Are The Features Of A Loan Against Property?
Loans against property come with repayment tenors that go up to 20 years. NBFCs like Bajaj Finserv provide up to Rs. 3.5 Crore with their Loans Against Property. Always check loan against property features before availing the loan. They also bring you pre-approved offers that simplify the process of availing loans and help you avoid the hassles. Pre-approved offers are available on home loans, personal loans, business loans, and several other financial products.
Lastly, you don’t have to pay any additional charges when foreclosing or part-pre-paying your loan. Hence, opt for a loan against property for business start-up and see it grow.