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About Loan Against Rent Receivables

There are different types of loan products available in the market today. With growing finance needs, one loan does not suit the needs of all. Even for the banks or financial institutions, it becomes easier if they offer tailor-made products for different customers. One such loan product is Loan Against Rent Receivables.

As the name suggests, this type of loan is targeted at owners of real estate buildings or commercial establishments who have given their space or part building on rent. The real estate has been on the upswing for some time now. While there is volatility in this market, the overall scenario has been strong. Many people invest in commercial properties/malls even at the developmental stage to take advantage of future gains. Such people are eligible to take loans from the bank on the grounds of future rent receivables through these invested properties.

Loan Against Rent Receivables are available both in urban and rural areas. The investment made in the purchase of a building or the rent receivables is treated as the security for the loan. This type of loan helps owners to get finance on the basis of future rent and generate liquidity in their portfolio. Most leading banks in the country offer this loan product. Read on for further details on this type of loan.

Loan Against Rent Receivables
Loan Against Rent Receivables

Purpose of Loan Against Rent Receivables

Investing in a commercial property is a huge financial commitment. This requires solid funding and returns may take time. During such a period, Loan Against Rent Receivables helps investors/owners of such establishments to get liquidity and meet other financial obligations. One can use this loan to invest in another property or expand current business. It is also possible to use this loan for a personal requirement as long as the eligibility criteria is fulfilled. The owners of a commercial establishment can take advantage of additional funds on the basis of future rent receivables.

Features of Loan Against Rent Receivables

Loan Against Rent Receivables as a product is growing fast with the developing industry of real estate. Some of the salient features of this financial product are:

  • This type of loan offers competitive interest rates making it very attractive to investors.
  • It offers extended loan tenure and tax benefits which makes your investment very attractive and profitable in the long run.
  • Most banks offer customized loan products to suit varying financial needs, thus, making it possible to take maximum advantage of the product.
  • There is flexibility in repaying the loan.
  • Most of the business individuals/firms/companies that have assured rental/maintenance income from other establishments are eligible for this type of loan.
  • Most banks offer funding up to 85% market value of the property.
  • This loan can be used for many purposes like new projects, expansion of current business, marriage, renovation/repairs and purchase of a new house.

Eligibility Criteria for Loan Against Rent Receivables

The general eligibility criteria followed by banks to take the Loan Against Rent Receivables are:

  • Own property in metro/urban/semi-urban/rural areas that have been leased/let out to individuals, self-employed, HNIs, government, proprietary firms, professionals etc.
  • Property should be earning rent.
  • It is built as per approvals from the local authorities.
  • Credit worthiness of the owner and tenant.

Benefits of Loan Against Rent Receivables

Most banks offer Loan Against Rent Receivables today. With the increase in investments in the real estate sector, investors are always on the lookout for various ways to keep maximum finance available for different needs. Some of the noteworthy benefits of this type of loan are:

  • Banks offer flexible repayment options on this type of loan. Since the loan amount is much higher than any of the regular loans, this type of flexibility is advantageous to the borrower.
  • There are different types of Loan Against Rent Receivables such as demand loan, TL or OD with diminishing balance.
  • The loan amount varies anywhere from Rs 25 Lakhs up to Rs. 200 crores with many banks.
  • This type of loan can be used for many purposes including personal needs.
  • Customized loan offering is given by most banks since the amount borrowed is huge.

Interest rates and other charges on Loan Against Rent Receivables

Interest rate is determined on the basis of amount borrowed and the tenure as is the case with regular loans. In this case, there would be a requirement of showing rent receivable as a proof of income which is considered as a collateral. The total amount of loan offered is dependent on the collective amount of rent expected out of the property.

Since the amount borrowed is usually huge, the interest rate can be negotiated well with the banks. There is an assured amount of income out of the property, hence, less risk is involved.

Some of the other details of this loan are:

TenureVaries from 120 months or residual tenure lease whichever is less
Loan Amount

Minimum of Rs. 25 lakhs

Maximum of Rs. 200 crores

Processing FeeVaries from 0.5% and can go up to 1%
Maximum Funding available50% - 85% market value of the property

How to Apply for a Loan Against Rent Receivables

One can approach the bank directly by visiting the closest branch to your location. A bank representative will share details of the loan and assess your requirement as well as current property investments. Based on the documentation provided, the bank will process your application and release the loan amount.

An alternate way to apply is getting online and submitting your enquiry. A bank representative will get in touch with you for an initial assessment and thereafter, request the mandatory document submission. Some banks offer door step service for their regular/premium customers for this purpose. This is an easier and more convenient method to reach out for a loan application. Most banks also offer 24x7 customer service through their call centre which can also be used to register your interest in taking this loan.

Some of the most important documents required by most banks to take this loan are:

  • An application form with a photo
  • Identity and Residence proof
  • Salary slip for 3 months or 6 months
  • Last 6 months bank statement
  • IT returns filed for 3 years
  • Property documents such as deed, approved building plan, rent agreement etc.

Top Banks offering Loan Against Rent Receivables

Some of the top lenders in the country who offer this type of loan are:

  • SBI
  • HDFC Bank
  • IDBI Bank
  • Federal Bank
  • Bank of Baroda
  • Karur Vysya Bank

FAQs: Loan Against Rent Receivables

1. What type of property is considered for this loan?

Commercial properties like shops and offices are accepted as properties for availing this loan.

2. Can I prepay this loan? Are there any charges?

It is normally possible to make a prepayment for this loan and this can be done only after 6 months. Most banks do charge a fee for a prepayment.

3. How can I foreclose a loan against rent receivable account?

One needs to submit a written personally to the bank to foreclose a loan against receivable account.

4. What is EMI?

EMI stands for Equated Monthly Instalment wherein you repay a loan taken in equal instalments for an agreed period.

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