Factors to Consider Before Obtaining a Commercial Property Loan

Take into consideration the following factors when deciding whether to obtain a commercial property loan:

Eligibility and Required Documents

The first step is to check your eligibility for the loan. Each bank or non-banking financial company (NBFC) has its own set of eligibility criteria and requirements. Ensure that you meet the criteria and possess all the necessary documents before applying for the loan. HFS offers a convenient calculator that instantly determines your eligible loan amount by considering inputs such as monthly income, repayment obligations, loan tenure, profession, and income type.

Loan Tenure

The loan tenure refers to the duration over which you will repay the loan. It typically ranges up to 15 years, depending on the policies of the lender. Choose a tenure that you believe you can repay without any defaults.

Fees and Interest Rates

Another crucial factor to consider is the fees and interest rates, which can vary among lenders. Before making your final decision, ensure that you compare offers from different lenders to obtain the best deal.

Prepayment Charges

Some lenders impose a prepayment fee if you decide to repay your loan before the agreed tenure ends. This fee may differ from one lender to another.

Loan-to-Value Ratio

The loan-to-value ratio represents the percentage of the property’s market value that can be financed through the loan amount. It typically ranges up to 65%, varying among lenders.

Developer Profile

Lenders also consider the track record and financial stability of the property developer, especially when the property is under construction. Therefore, if you are directly purchasing from a developer, lenders take into account the delivery schedule as well. 

Technical Specifications

Lenders assess the technical specifications of the property to ensure compliance with safety and environmental regulations. This includes factors such as fire safety measures, civic amenities, elevators and more.

Regulatory Approvals

Before the loan can be disbursed, the commercial property must obtain clearance from all relevant government and municipal departments. The specific approvals required may vary depending on the location.

Area

The size or area of the property is an important consideration for lenders, who may have minimum property size criteria in place. 

Property Age

Most lenders prefer financing properties that are not excessively old, making the age of the property an important criterion. 

Benefits of Availing of Commercial Property Loans

Higher Loan Amount

Commercial property loans typically offer higher loan amounts compared to other types of loans, such as personal loans or business loans. This is due to commercial properties being considered valuable assets with potential revenue generation. 

Lower Interest Rates

Commercial property loans usually feature lower interest rates compared to personal loans since they are secured loans. 

Shorter EMI

You can select for shorter Equated Monthly Installments (EMIs) compared to personal or business loans, with repayment periods available for up to 7 years.

Tax Benefits

By availing of a commercial property loan, you can also enjoy tax deductions under Section 24 on the interest payments made towards your loan EMIs. This can result in significant long-term savings. 

Increasing Property Value

Investing in commercial property can contribute to the growth of your net worth. Over time, the value of the property tends to appreciate due to demographic changes and infrastructural developments in the area.

Rental Income

Commercial properties have the potential to generate rental income, which can be used to offset the EMI payments. This provides an additional source of revenue and increases the overall profitability of the investment. 

To conclude, commercial property loans present a viable option for real estate investment. They enable you to secure financing from various lenders and offer a range of benefits. However, it is crucial to conduct thorough research, compare different options and consider the mentioned factors before making a final decision. By doing so, you can ensure that you make an informed choice and maximise the advantages associated with commercial property loans.