You need to keep in mind certain pointers when applying for a loan on commercial property in India.
Taking a loan for a residential property may be a common thing but there are many people who take a loan for commercial property in India. It is possible to take a loan on commercial property as some banks provide this facility. There are certainly differences between the two that need to be kept in mind.
Loan for commercial property is either for an outlet or an office space which can be further divided into under construction and ready to occupy. Lot many lenders hesitate to lend for commercial properties because majority of them are investors. Rather they would lend to individuals. Same applies to under construction property as well.
Difference between residential and commercial property loans:
- Low LTV: Loan to Value ratio is the proportion that the bank will finance and the remaining amount is the down payment. While for commercial properties, it is 55 per cent, in case of residential properties, it ranges from 75-90 per cent. So, a major portion needs to be paid from the pocket when it comes to commercial properties.
- Processing fee: This fee is higher for commercial properties in comparison to residential ones. While for residential properties, it is a maximum of Rs 10,000, in the case of commercial properties, it is mostly one per cent of the amount of loan.
- Rate of interest: The loan for commercial property interest rates is higher compared to residential ones.
- Tenure: While for a commercial property loan is for a period of 10 years, the tenure for residential properties is 30 years.
- Builder category: For the lenders of a commercial property loan, it is essential that an under-construction property is completed on time. Generally, they take less time for construction than residential properties. The lenders verify the previous record of the builder regarding delivery schedule and then decide whether to give the loan or not. There are no such checks against residential properties.
- Evaluation on ground: Technical specifications like lifts, shafts, emergency kits, fire-extinguishing etc are evaluated so that it complies with the norms.
- Approved clearances: The statutory approvals like clearances from fire department, building plan etc need to be presented. There must not be any risk of demolition due to rejections or pending approvals when it comes to loan for commercial property calculator.
- Property valuation: In order to avail the loan for commercial property, the property value may be quoted higher. Lenders check the valuations independently considering that lower valuations have lower risk.
- Residual age: Older properties may not be technically compliant as per the commercial property loan eligibility calculator. The residual age or the usable years of the property may also be less. So, the chances of loan application being approved may be less.
- Minimum area in square foot: Is only funded for commercial properties including commercial shop loan interest rates.
Though borrowing is difficult, it generates higher ROI.