Complete Guide to Loan for Purchase of Commercial Property

Introduction to loans for commercial property purchases

Investing in commercial real estate can be a lucrative venture, but it often requires substantial capital. For aspiring entrepreneurs or established businesses looking to acquire or expand their commercial properties, loans tailored for commercial property purchases become a crucial financial tool. These loans provide a means to secure funding for the acquisition, development, or renovation of commercial spaces, ranging from offices and retail outlets to industrial complexes. In this introduction, we explore the key features, benefits, and considerations associated with loans designed specifically for commercial property transactions. Understanding these aspects is vital for individuals and businesses seeking financial support to navigate the complex landscape of commercial real estate investments.

Eligibility criteria for loan for purchase of commercial property

Nationality:

• You must be an Indian citizen residing in India with property in a city we operate in.

Age:

• Minimum age: 25 years* (18 years for non-financial property owners)
• Maximum age: 85 years* (including non-financial property owners)
  *age of the individual applicant / co-applicant at the time of loan maturity.
  *Higher age of co-applicant may be considered up to 95 years basis 2nd generation (legal heir) meeting age norms and to be taken as co-applicant on loan structure.

CIBIL Score:

• A CIBIL Score of 700 or higher is ideal to get an approved loan against property.

Occupation:

• Salaried, self-employed professionals like doctors, and self-employed non-professionals are eligible to apply.

Documents required:

• Proof of identity/ residence
• Proof of income
• Property-related documents
• Proof of business (for self-employed applicants), and

Account statements for the last 6 months

Note: This is an indicative list that may change based on your actual loan application.

Requirements for loan for purchase of commercial property

Acquiring a loan for the purchase of commercial property involves meeting certain requirements, and these can vary depending on the lender and the type of loan. However, here are some common requirements you might encounter:

1. Credit score:
   Lenders typically consider your credit score to assess your creditworthiness. A higher credit score increases your chances of securing a favourable loan and better terms.
2. Down payment:
   Commercial property loans often require a substantial down payment. The percentage may vary, but it is common for lenders to ask for 20% to 30% of the property's purchase price.
3. Financial statements:
   Lenders may require personal and business financial statements, including income statements, balance sheets, and cash flow statements, to evaluate your financial stability and capacity to repay the loan.
4. Loan-to-Value (LTV) ratio:
   Lenders calculate the loan amount based on the property's appraised value and may have a maximum loan-to-value ratio. A lower LTV ratio can improve your chances of loan approval.
5. Debt Service coverage ratio (DSCR):
   DSCR measures your ability to cover loan payments from the property's net operating income. Lenders often look for a DSCR above a certain threshold to ensure you can comfortably service the debt.
6. Property appraisal:
   Lenders typically require a professional appraisal of the commercial property to determine its market value and assess its potential as collateral.
7. Property type and condition:
   The type and condition of the commercial property can affect loan approval. Some lenders may have restrictions or preferences for specific property types, and they may require inspections to ensure that the property is in good condition.
8. Personal and business tax returns:
   Lenders often request personal and business tax returns for the past few years to verify your income and financial stability.
9. Legal documents:
   Documentation such as property titles, zoning information, and legal descriptions may be required. For businesses, legal documents, including articles of incorporation and business licences, may also be necessary.

Key features of loans for commercial property purchases

1. Loan amount:
   Commercial property loans offer varying loan amounts, providing borrowers with the flexibility to secure financing based on the property's value and their financial capacity.
2. Interest rates:
   Interest rates can be fixed or variable, impacting the overall cost of the loan. Fixed rates provide stability, while variable rates may offer flexibility based on market conditions.
3. Loan terms:
   Commercial property loans come with different loan terms, ranging from short-term loans (for example, bridge loans) to long-term loans. The loan term affects the repayment schedule and overall financing structure.
4. Amortisation period:
   The amortisation period determines how long it takes to repay the loan in full. While the loan term specifies the time for repayment, the amortisation period defines the schedule for principal and interest payments.
5. Down payment requirements:
   Borrowers are typically required to make a down payment, which is a percentage of the property's purchase price. The down payment demonstrates the borrower's commitment and mitigates the lender's risk.
6. Loan-to-Value (LTV) ratio:
   Lenders assess the loan amount relative to the property's appraised value through the loan-to-value ratio. A lower LTV ratio may result in more favourable loan terms.
7. Repayment structure:
   Repayment structures vary, including monthly installments, interest-only payments, or balloon payments. The structure depends on the loan type and agreement between the borrower and lender.
8. Collateral requirements:
   Commercial property loans are secured by the property itself. In case of default, the lender may have the right to seize and sell the property to recover the outstanding balance.
9. Prepayment penalties:
   Some commercial property loans may have prepayment penalties if borrowers repay the loan before the agreed-upon term. It is crucial to understand these penalties and negotiate favourable terms.
10. Loan approval process:
    The loan approval process involves thorough property and borrower evaluations, including credit checks, financial statements, property appraisals, and legal documentation.

Benefits of loans for commercial property purchases

1. Asset acquisition:
   Commercial property loans enable businesses and investors to acquire valuable assets, fostering growth and expansion.
2. Capital preservation:
   By financing the property purchase, businesses can preserve their capital for other operational needs, investments, or unforeseen expenses.
3. Tax benefits:
   Interest payments on commercial property loans may be tax-deductible, providing potential tax benefits to borrowers.
4. Financial leverage:
   Commercial property loans allow borrowers to leverage their capital, increasing their purchasing power and potential return on investment.
5. Flexible repayment structures:
   Loans offer flexibility in repayment structures, allowing borrowers to choose terms that align with their financial goals and cash flow.
6. Potential appreciation:
   Commercial properties have the potential to appreciate over time, contributing to the overall wealth and financial stability of the borrower.
7. Income generation:
   For income-producing properties, such as rental units, commercial property loans can facilitate steady income generation through lease agreements.
8. Diversification:
   Investing in commercial properties provides diversification for an investment portfolio, reducing risk and increasing potential returns.

How to apply for loans for commercial property purchases

Step-by-step guide to apply for a loan against property

1. Click on the 'APPLY' button on this page.
2. Enter your pin code and click Proceed.
3. Provide basic details like your full name and mobile number.
4. Choose ‘salaried’ as your employment status.
5. Now select the type of loan that you wish to apply for, your net monthly income, your area pin code, and the required loan amount.
6. Generate and submit your OTP to verify your phone number.
7. Enter further details like your property location, your current EMI amount/ monthly obligation, and your PAN card.
8. Click on the ‘SUBMIT’ button.

That is it! Your loan request is submitted. Our representative will connect with you and guide you through the next steps.