A Loan Against Property (LAP), also known as a mortgage loan, is a secured loan extended by banks and NBFCs against the mortgage of an unencumbered residential, commercial, or industrial property.
Why Businesses Opt for LAP
LAP is among the most cost-effective long-term borrowing options for business owners because the presence of high-quality real estate collateral reduces lender credit risk, leading to more favorable terms compared to unsecured credit.
- Higher Quantum: Significant loan amounts structured against the market valuation of the property.
- Extended Tenure: Repayment schedules can range from 5 up to 15 years, reducing monthly EMI commitments.
- Competitive Interest Rates: Generally lower than unsecured commercial loans.
- Multi-Purpose Utilization: Funds can be utilized for business expansion, working capital augmentation, debt consolidation, or long-term growth.
Key Factors in LAP Assessment
- Property Title & Legal Clearance: Clear title, approved plan, and chain of title documents without legal encumbrances.
- Loan to Value (LTV): Typically ranges from 50% to 70% of the property's fair market valuation as determined by approved technical valuers.
- Debt Service Coverage (DSCR): Proof of adequate net cash flow and business profitability to comfortably service monthly EMIs.