All You Need to Know About Commercial Property Loan

A commercial property loan is taken to purchase or renovate non-residential properties. These loans are solely meant for properties that run a business such as office spaces, shopping complexes and restaurants.

How does it work?
Commercial properties can be divided into two segments—office spaces and retail outlets. These segments are further classified as under-construction and ready-to-move properties. Like most other loans, a loan against commercial property requires the borrower to mortgage a reliable property for approval. Mostly, the collateral is preferred to be another commercial property and not a residential one.  This provides the lender with a sense of security against defaulters.

Who can avail a commercial property loan?
Self-employed professionals such as doctors, charted accountants and lawyers are eligible for a commercial property loan. Also, business owners who have firms are another category eligible for this loan. In either case, commercial property loan eligibility includes other factors well. Some of the factors to be considered before taking a commercial property loan are:

            Also Read: 9 Factors Which Impact Your Eligibility For Loan Against Property

Features
Although most benefits offered by the lending institutions are the same, some unique features of the loan should be cross-checked with each lender before going ahead with it. These features can help in saving a considerable amount of money on the loan taken. Some of such features are commercial property loan rates, additional repayments, capitalised interest and offset accounts. Each provider has its targets in the market, pricing as well as products. So, it is always helpful to let them understand your needs.

Interest Rates
Making it as obvious as it can get, always check the interest rates of the loan provider. Commercial property loans are usually very secured in nature. That is one of the reasons why commercial property loan rates are comparatively lower than that of general, educational and personal loans, which are a bit unsecured. It is not difficult to find the best commercial property loan rates provider in the market. Be double-sure about it before getting into a deal with a financial institution.

            Also Read: Home Loan vs Loan Against Property: What should you choose

Foreclosure
Foreclosure of the loan means repaying the borrowed amount to the lender well in advance, before completing the loan term. This generally helps in saving the interest amount for all the remaining months. However, some financial institutions or loan providers may not encourage this practice and may charge a penalty for it.

Loan Amount is the Key
The value of a property is the determining factor in deciding how much loan amount you need. This assessment is generally done by the loan provider. However, it is always good to check it with different lenders. The commercial property loan calculator can help in understanding the approximate market value of the property and calculating the required loan amount to complete the project. Normally, the borrowing amount ranges from 50% to 70% of the total value of the property. A hefty requirement, thus, needs a greater value to cope up.

Charges
Do not fall for the ‘no extra charges or fees’ feature of the loan. In reality, they are all tagged under the hidden charges. Such charges include legal charges, fees for registration, loan assessing charges, brokerage and so on. So, either be prepared to see some unexpected expenses in the final quotation or even better, discuss in detail all the hidden costs that you will haveto bear to avail the loan.

            Also Read: Loan Against Property vs. Personal Loan

Conclusion
The first question to ask yourself is if you really need a commercial property loan if the fund requirement is not limited to a commercial property. Cross-check the eligibility criteria and explore other options in the market before short listing a commercial property loan. Remember, a commercial property loan offers zero tax benefits. So, consider all these factors before availing a commercial property loan.