Commercial Property Loan

How does a loan on commercial property work?

A commercial property loan is a type of mortgage loan that is secured through the mortgage of commercial property instead of residential property. Depending on the market value of your commercial real estate you get funding for all types of expenses, be it higher education, business expansion, a family wedding, or debt consolidation.

Bajaj Finserv provides commercial property loan of up to Rs. 10.50 crore** basis your eligibility to borrowers at affordable mortgage rates of interest and for flexible repayment tenors of up to 15 years. However, you can opt to prepay at any time before the tenor ends.

You can get a loan on commercial property by meeting simple mortgage eligibility criteria and keeping the documents required ready.

Commercial Property Loan Interest Rate: Self-employed

Documents required for a commercial property loan

Besides fulfilling the eligibility criteria for a commercial property loan, all applicants/ co-applicants need to submit the following documents along with the duly filled and signed application form

1. Proof of identity and residence: Individuals need to submit their KYC documents such as Passport, Driving License, Voter’s Identity Card, Aadhaar Card, job Card issued by NREGA duly signed by an officer of the State Government, Letter issued by the National Population Register.

2. Proof of income: Applicants can submit the below documents as proof of income.

• CA-attested ITRs along with the computation of income of the business as well as themselves for the previous three assessment years
• Savings account and current account statements
• CA-attested balance sheets and profit and loss statements for the past three years

3. Property-related documents: Property-related documents required for a commercial property loan include a copy of the allotment letter/ buyer agreement as well as title deeds, which include the previous chain of property documents in resale cases.

4. Other documents: Here’s a list of other commercial property loan documents that individuals need to submit to complete the application procedure.

• Business profile
• Memorandum of Association and Articles of Association in case of a company
• List of Chartered Accountants and Company Secretariats
• Partnership deed (if the business entity is a partnership firm)
• Details in relation to pre-existing loans of the applicants as well as the business entity, including instalments, outstanding amount, purpose, etc.
• Proof of own contribution
• Passport size photographs of all applicants/ co-applicants
• Cheques drawn in favour of the loan provider to pay the processing fee

Note that an application can get cancelled if an individual fails to submit any of these documents. Hence, before applying for financial assistance, it is essential to ensure that all the documents mentioned above are available.

Commercial property loan eligibility

Only self-employed individuals can apply for this type of financial assistance. The applicants are further classified into two types, namely:

1. Self-employed Professional (SEP):

The below professionals come under this category

• Doctors
• Chartered Accountants
• Consultants
• Architects
• Lawyers
• Company Secretaries, etc.

2. Self-employed Non-Professional (SENP):

Below are a few examples of SENPs

• Traders
• Commission agents
• Contractors, etc.

According to the commercial property loan eligibility criteria, SEPs and SENPs need to fulfil the following requirements:

• Age: You must be between 25 years (18 years for non-financial property owners) to 85 years* (including non-financial property owners)
  * 85 years* of age or less at the time of loan maturity
• Stable income: It’s imperative for self-employed individuals to maintain a stable source of income. If the income proof documents fail to represent the same, the financial institution may cancel the application
• Indian resident: Applicants must be residents of India to be eligible for a commercial property loan.

Before initiating the application procedure, it is essential for applicants/ co-applicants to make sure that they meet the requirements. If they fail to do so, their application will get cancelled.

Note: Before applying for a commercial property loan, you must calculate the area you want that you want to mortgage. An area converter tool can help you to calculate the area in the form of units your lenders are asking for.

Types of Commercial Property Loans

Commercial property loans can be categorised into several types, depending on the purpose and structure of the loan. These include:

1. Traditional Commercial Mortgages:

These are standard loans offered by banks and financial institutions, generally for a term of 10-20 years. They often require collateral, usually the property itself.

2. SBA 7(a) Loans:

These are backed by the Small Business Administration (SBA) and are great for new businesses and start-ups due to their favourable terms.

3. SBA 504 Loans:

These are also backed by the SBA and are designed for significant fixed asset purchases, such as commercial real estate or significant equipment, with favourable terms.

4. Bridge Loans:

These are short-term loans often taken to bridge the gap between short-term funds requirement and a more permanent form of financing.

5. Hard Money Loans:

These are short-term financing options with higher interest rates, usually backed by the value of the property rather than the creditworthiness of the borrower.

6. Conduit Loans:

These are commercial mortgages bundled and sold on a secondary market, generally featuring lower interest rates and longer loan periods.

Additional Read: How to apply for loan against property

Features of Commercial Property Purchase Loan

A commercial property purchase loan helps businesses acquire real estate for business operations, such as office spaces, warehouses, and retail locations.

• Purpose: Financing for purchasing commercial properties like offices, warehouses, and retail spaces.
• Loan-to-Value (LTV): Typically covers 60–80% of the property’s appraised value.
• Repayment Tenure: Ranges from 5 to 20 years.
• Interest Rates: Fixed or variable, often higher than residential loan rates.
• Eligibility: Requires good credit, strong business financials, and a down payment.
• Collateral: Property serves as collateral; additional collateral or guarantees may be required.
• Flexible Repayment Options: May include interest-only periods, balloon payments, or other structures.
• Tax Benefits: Interest payments are often tax-deductible as a business expense.
• Application Process: Involves detailed documentation, including financials, credit history, and a business plan.
• Fees and Charges: Includes processing, legal, and appraisal fees, impacting overall borrowing costs.

What are the benefits of a commercial property loan?

A commercial property loan offers several advantages to businesses looking to invest in or refinance commercial real estate. This type of financing allows companies to purchase, renovate, or refinance commercial properties while maintaining financial flexibility. One of the key benefits is the ability to spread costs over years, thereby ensuring smooth cash flow without significant upfront expenses.

1. Preserves cash flow:

A commercial property loan allows businesses to spread the repayment over several years, helping maintain liquidity for daily operations and other investments.

2. Cost-effective financing:

Instead of paying the full amount upfront, businesses can access affordable financing options, making it easier to invest in property development.

3. Flexible usage options:

Commercial property loans can be used for a variety of purposes, including purchasing new property, renovating existing assets, or refinancing current debts.

4. Opportunity for expansion:

These loans enable businesses to acquire strategic real estate locations for growth, such as office spaces, warehouses, retail outlets, or manufacturing facilities.

5. Lower interest rates:

Compared to unsecured loans, commercial property loans often come with lower interest rates, making them a cost-effective financing option.

6. Supports long-term goals:

By leveraging a loan against property, companies can invest in real estate to support long-term strategic objectives, such as business expansion or diversification.

For businesses considering financing options, exploring a loan against property could further enhance financial flexibility. This type of loan offers similar benefits with real estate as collateral, providing competitive interest rates and a simplified borrowing process.

How to apply for commercial property loan online?

1. Research lenders: Start by comparing different lenders offering business property loans online. Look at interest rates, terms, and eligibility criteria.
2. Check eligibility: Ensure you meet the basic requirements such as business type, credit score, income, and property value.
3. Prepare documents: Gather necessary documents, including your business financials, property details, identity proof, and tax returns.
4. Fill out the application: Complete the online application form provided by the lender with accurate details about your business and property.
5. Submit and wait for approval: Submit the application and wait for the lender to process it.
6. Sign agreement: Once approved, review and sign the loan agreement digitally to finalize the loan.
7. Disbursement: After signing, the loan amount will be disbursed to your account.