How Can Small & Medium Enterprises Benefit From Loan Against Property

Introduction

Small and Medium Enterprises are considered to be the backbone of India’s economy. These businesses, to grow and thrive, tend to take external financial support. The funds may be utilised to expand operations, purchase new machinery, renovations, or for working capital purposes. Entrepreneurs who are running these enterprises will come across a number of loans in the market. Among the many loan options available, Loan Against Property is considered a highly beneficial tool for business owners seeking substantial funding without higher interest rates, unlike unsecured loans.

What is a Loan Against Property?

Loan Against Property is a secured loan where the borrower mortgages their residential, commercial or industrial property to avail themselves a loan. It is a multipurpose loan and can be used for business expansion or to manage working capital needs. Loan Against Property for business development is considered an excellent choice since it provides a plethora of benefits to the borrower.

Additionally, the loan amount provided by the lender can be higher compared to working capital loan or unsecured loans, and the loan amount largely depends on the value of the mortgaged property, giving business owners the edge to access major developmental projects and freedom to operate.

Here are some points you should know if you’re choosing Loan Against Property to fund your business dreams and the benefits you can reap from the same.

Benefits of Loan Against Property for SMEs

Small and medium-sized businesses can benefit greatly from loans secured by real estate since they provide a number of advantages. From the perspective of the entrepreneur, a loan with as many perks as a loan against property provides is very welcome, particularly when you are gradually moving up the success ladder.

• Access to larger funds: Business expansion often requires a substantial amount of money. Since Loan Against Property is a loan based on collateral, lenders will be ready to offer a larger sum. It can range anywhere from 60% to 70% of the property value.
• Access to larger funds: Business expansion often requires a substantial amount of money. Since Loan Against Property is a loan based on collateral, lenders will be ready to offer a larger sum. It can range anywhere from 60% to 70% of the property value.
• Flexible repayment tenure: One of the biggest benefits of loan against property is the flexibility it offers in terms of repayment tenure. The tenure can be adjusted according to the borrower’s repayment capacity. The repayment timeline can go up to 15 years, based on the lender. This flexibility empowers SME owners to manage their cash flow more effectively.
• Flexible use of funds: Loan against property can be used for a variety of business development activities. The loan availed can be used to invest in business expansion, acquire/upgrade new equipment, hire additional staff, enhance marketing efforts, consolidate high-cost borrowings, or improve cash flow management.
• Freedom of ownership: Another advantage is that the borrower retains ownership of the property, and only mortgages it as security, which means they can continue to use the property for personal or commercial purposes while benefiting from the loan.
• Quick disbursement: In the competitive world, time is an essential essence for undertaking any project. Fortunately, the overall process for loan against property is relatively quick. This quick nature of LAP which ensures timely accessibility to funds, can be crucial for SMEs that need immediate capital to harness the current business opportunities or address urgent operational needs.
• Tax benefits: Another significant benefit of a loan against property is it allows you to enjoy tax benefits while you reap the benefits of the loan. The interest incurred on the loan can be deducted from the taxable income, thereby reducing the overall tax burden on the business.
• Improved credit profile: Entrepreneurs who avail loan against property and repay their installments on time will have an excellent credit score, which means enhanced credibility. Maintaining a decent credit score is also essential to be in the good books of the financiers and securing loans with favorable terms.

What should you consider before applying for a loan against property?

While the benefits of loan against property seem eye-catching, it’s advised for SME owners to make well-informed decisions before opting for one. Borrowers should evaluate their property precisely, understand the loan terms thoroughly, and ensure that the business has the repayment capacity to manage the loan effectively. Defaulting on a loan against property will result in the lender confiscating your property and have an adverse effect on your credit history, which will minimise the chances of further access to loans.

Additionally, choosing the right lender is a critical step in determining whether to take out a loan against a property. One such lender you can consider starting a financial relationship with is Cholamandalam Investment and Finance Company Limited. We are known for offering a wide range of loans with tailor-made solutions against both residential, commercial and industrial properties. With over 46 years of experience and expertise, having more than 1,400 branches serving over 40 lakh customers across India, Chola is a trusted financial partner for SMEs looking to upscale their businesses.

Summary

For entrepreneurs who are looking to upscale their business or pass through financial turbulences without selling off their properties, loan against property is undoubtedly a robust and flexible financial solution. Also, feel free to take the help of a financial expert to clear up your queries and choose the right financial product that suits your requirements.