Things You Need To Know Before Buying A Commercial Property On Loan

Buying commercial property is a significant financial decision. Whether you’re expanding your business or investing in real estate, it’s important to understand the process, especially when it involves a loan. Commercial property loans offer the required financial backing, but it’s essential to approach this step with adequate information.

Understand Commercial Property Loans

Commercial property loans are used to buy properties for business purposes. These properties can include office spaces, warehouses, or retail outlets. Unlike home loans, commercial property loans typically have higher interest rates due to the increased risk associated with business investments. Banks and NBFCs offer these loans with different terms, conditions, and repayment options.

Interest rates may vary based on the lender, the location of the property, and the borrower’s financial profile. You could use the Bajaj Markets loan app to compare interest rate options from various lenders to help make an informed decision.

Eligibility Criteria for Commercial Loans

Before applying for a loan, check the eligibility requirements. Lenders, including banks and NBFCs, consider several factors such as:

1. Most lenders require businesses to be operational for at least three years
2. The financial health of the business is crucial. Stable revenue streams increase your chances of loan approval
3. Lenders generally favour scores above 700 for commercial loans and a higher credit score may result in a lower interest rate
4. Commercial property itself usually serves as collateral

However, lenders may also ask for additional security depending on the loan amount. Each lender has its own set of requirements.

Interest Rates and Loan Terms

Interest rates on commercial property loans tend to be higher compared to home loans. These may vary between lenders, and even a small difference in rates can impact your total repayment amount. For instance, an interest rate of 9% p.a. compared to 10% p.a. could lead to significant savings over a long loan tenure.

Loan tenure is another important factor. A longer tenure means lower monthly payments but a higher total interest payout. Conversely, shorter loan tenures mean higher monthly instalments but could reduce the overall interest burden.

Always look for flexible loan terms that suit your financial situation. The Bajaj Markets app offers tools to calculate your EMI and interest based on different loan amounts and tenures.

Down Payment Requirements

Commercial property loans often require a substantial down payment. Most lenders ask for a down payment of 20% to 30% of the property’s value. For example, if the property costs ₹1 Crore, you may need to pay ₹20 Lakhs to ₹30 Lakhs upfront.

Ensure that you have enough liquidity to manage this payment. Your down payment size may also influence the interest rate you get. A larger down payment can reduce the loan amount, potentially leading to better loan terms.

Additional Costs Involved

When buying a commercial property on loan, it’s essential to budget for additional costs. Some of these include:

1. Fees payable to the government when purchasing property
2. Costs for property documentation and verification
3. Commercial properties are subject to higher property taxes than residential properties
4. These costs depend on the condition and size of the property

These costs can add up, so be prepared. Having a clear picture of these expenses ensures you don’t face financial strain later.

Loan Repayment Options

Commercial property loans come with various repayment options. The most common method is Equated Monthly Instalments (EMI). Depending on the lender, the loan repayment term can range from 5 to 15 years. Evaluating your business cash flow before deciding on a repayment plan is essential.

Some lenders also offer the option of making part-prepayments without any penalties. By doing so, you can reduce the principal amount and save on interest over time. Using tools on online financial marketplaces like Bajaj Markets could help you simulate various repayment options to determine which is most suitable for you.

Pre-approval and Loan Sanction

Before committing to a property, consider getting a loan pre-approved. A pre-approved loan gives you a clear idea of how much you can borrow, simplifying your property search. It also strengthens your negotiating position with sellers since it shows you’re a serious buyer.

Pre-approvals typically last for a limited period, usually 60 to 90 days. You can explore pre-approved loan offers on the Bajaj Markets app, where several banks and NBFCs offer quick processing.

Impact of Loan on Business Cash Flow

It’s essential to assess how the loan repayment will affect your business’s cash flow. Consider potential returns on commercial property investment. Ensure that you have a strong contingency plan in case of slower business periods or market downturns. A commercial property loan is a long-term commitment, so it’s important to maintain a healthy financial buffer.

Choosing the Right Lender

Choosing the right lender is critical when buying a commercial property on loan. Some lenders may offer better interest rates, while others could provide more flexible repayment terms. Before finalising a lender, consider their loan processing time, customer service, and prepayment policies. It’s always a good idea to review customer feedback to understand their experience with the lender.