Is It Wise For New Business Start-Up To Take A Loan Against Property?

Starting a business requires a substantial amount of capital to acquire inventory, buy equipment, office space, legal procedures, and certifications, etc. To this effect, you may require funding from external sources, especially if you are a budding entrepreneur. Taking a loan against property for a business start-up can help you organize the capital you need easily and affordably. While you can take an unsecured loan, the cost is higher and the loan amount is lower.

Besides, if you’re a recent business entity your credit score and business vintage may not be up to par to take an unsecured business loan. Hence a loan against property is the best option for you. However, before you apply for this funding solution it is important that you check whether you match the loan against property eligibility criteria and also evaluate whether this loan caters to the needs you have in mind. Focussing on these 3 aspects will help you make a smarter decision.

Compare the Loan Against Property Interest Rates with that of other Loans

By submitting collateral, the lender’s interests are better protected, and the financial institution is able to offer you a better rate of interest on your loan against property. This lowers the cost of borrowing and makes taking a loan to finance your business start-up a cost-effective move. On the other hand, a business loan is unsecured and hence has a higher rate of interest and isn’t as economical.

In addition, when deciding upon terms for repayment, it is wiser to choose a short tenor for a new business owner. You will be able to clear the loan quicker, and while EMIs will be higher, the total interest payment will be lower, hence making the loan more affordable. You can use a loan against a property calculator to ascertain monthly installments for various loan amounts and tenors. This will help you make a smart borrowing decision and ensure that you don’t choose a tenor that isn’t feasible given your finances.

Evaluate your Property’s Value

Since a loan against property uses a commercial or residential property that you own as collateral, its value is important as it determines how much you can borrow. In a nutshell, your income and property valuation report determine approval and the loan amount. Usually, a lender will usually take two valuation reports into consideration and the amount disbursed is based upon the lower value.  

To increase your chances of getting a better valuation, you should pay attention to the presentation of your property, know the property rates for your locality, complete repairs and create a list of improvements that you have made to the property. To get your business idea off the ground you can also apply for a Loan Against Property from Bajaj Finserv. The eligibility criteria are minimal, and apart from being affordable, it offers self-employed individuals up to Rs.3.5 crore with a flexible repayment tenor of up to 18 years.

However, if the value of your property isn’t high it is best to take a business loan. It will give you access to the amount you seek and keep your property safe too.

Consider your Ability to Clear the Loan

It is important to evaluate your ability to repay the debt before you take a loan against your property, as you have to hand over possession of your property papers to the lender. You will only regain control once you clear the loan completely. As a young entrepreneur, if you have a high-risk business model it may be unwise to opt for loans against property. A dip in your income levels could lead to you defaulting on EMI payments. You can consider taking a business loan to fund your business venture in case you are unsure of what your income will be in the future months.

It is a lower value loan and doesn’t put your property at risk. However, if your revenue projections are accurate and you’ve crossed the product development stage, for instance, you can take a loan against your property for higher amounts of credit and ease of use.

To save on time and get access to funds for your business start-up quickly, have the loan against property documents required in order and submit them immediately. Thereafter, your loan will be sanctioned within 72 hours. Make use of easy eligibility, minimal documentation, and speedy disbursal processes to get your business off the ground.

Finance