All About a Loan Against Property Against Immovable Commercial Assets

Having a well-furnished commercial real estate is much more than just a reflection of your prosperous business. It assists you in dealing with any personal or professional financial crisis. You can use it to mortgage with a lender and receive significant funds against it at a low-interest rate. But do you know what commercial assets are eligible for mortgage financing? Or are you aware of the terms and conditions that a lender checks before sanctioning a loan against immovable commercial assets? If not, read the article to learn about them.
 

Immovable Commercial Assets Eligible for Mortgage Loan

 
The following are examples of mortgage-worthy properties.
 

1. Office premises

   Financial institutions approve loans against office premises. However, they consider several parameters when calculating the maximum loan-to-value (LTV). For example, if your office is in the heart of the city, your chances of being approved for a large sum of money are higher. But, if it is located on the city outskirts or in a village, you may be approved for a smaller loan, or some lenders may even reject your application.

1. Factory

   You can use a factory or a well-equipped manufacturing unit to secure funds against it if you own one. When approving funds against factory premises, the lender evaluates many factors. Among them are the factory's condition, the types of equipment deployed, the age of various installations, and a few others.
    

2. Farmhouse

   You can get a mortgage loan if you own a farmhouse and use it for commercial purposes rather than personal leisure. Farmhouses these days can be rented for destination weddings, corporate events, family vacations, and other small or large events. When applying for a mortgage loan against a farmhouse, the lender will request income proof generated by that property in addition to property documents.
    
   In addition to the above, real estate such as school buildings, hospitals, or shops can be used to secure a higher loan amount.
    

Also Read: Documentation for Loan Against Property - What You Need to Know
 

What factors your lender considers before approving a loan against immovable commercial assets?

The four key factors that determine whether you are eligible for a mortgage loan are as follows:
 

1. Credit report

   Your credit report is essential regardless of the type of loan you are applying for. It is prepared and provided by the credit bureau at the lender's request. A credit report contains detailed information on how you previously managed your debt. Any previous loan settlements, default cases, and EMI skips are all recorded on it.
    
   The lender will deny your mortgage loan application if your credit report card is poor.
    

2. Debt-to-income ratio

   Even if your commercial real estate is expensive, you may be denied a mortgage loan due to a high debt-to-income (DTI) ratio. It is the ratio informing how much of your monthly business income goes towards different debt repayment. In the case of a loan against commercial immovable property, most lenders proceed with an application if the borrower's DTI is below 50. 
    
   It is best to pay off some of your high-interest loans first before proceeding with your mortgage application. If you are wondering how to calculate DTI, use the formula below.
    
   DTI = (Total Monthly EMI) / (Gross Monthly Income)
    

3. Nature of Business

   Most lenders only provide mortgage loans to self-employed individuals. However, they have guidelines in this regard. For example, if you own a business that only operates during a specific season or festival, you may be denied a loan regardless of how much money you make in that short period. Similarly, trading with a nation that might be in conflict also disqualifies you from receiving this loan.
    

4. Property’s location

   As previously mentioned, the location of commercial real estate is crucial. If your office space is in the heart of the city, it will undoubtedly be more valuable. Furthermore, if you default, the lender will have an easier time auctioning off the property and recouping its losses.
    
   Apart from that, a property with damaged walls, ceiling leakage, and broken windows will result in loan rejection. The reason is that a property nearing the end of its lifespan does not qualify for a mortgage.
    

Also Read: Understanding Loan against Property Interest Rates and Charges
 

To conclude

 
You can apply for a loan against property against immovable commercial assets if you own a factory, office space, farmhouse, shop, or restaurant. It is important to have all the property papers in place. Also, please note that the lender considers not only the asset but also your credit report, business type, and DTI ratio. Thus, it is critical to investigate these factors before proceeding with your application.