One of the most significant problems most business owners face is funding. There are currently around 1.6 million active companies in India, of which the majority lack adequate financing. This affects their revenue, profitability, and overall growth. It is detrimental to micro, small, and medium enterprises and the economy.
Micro, Small, and Medium Enterprises (MSMEs) employ over 20.2 crore Indians and contribute almost 30% of the country’s GDP. Supporting this sector benefits business owners and the economy at large.
This is where loans against property (LAP) come in. They can help MSMEs fund infrastructure development, team expansion, research and development, and more. This article explores what LAP is, how it works, and how it can benefit your business.
What is a Loan Against Property (LAP)?
A loan against property, also called home equity, is a secured loan that helps borrowers obtain credit using their existing property as collateral or security. With zero restrictions, loans against property can finance any big-ticket business expenses. It allows borrowers to benefit from the value of their property while continuing to occupy it.
When you avail of a LAP, you must submit your property documents to the lender as collateral. LAPs can be used for various business needs, including working capital, debt consolidation, investments, property renovations, asset acquisition, etc.
They help businesses expand operations, update equipment, manage cash flows, and more. Startups can benefit from using LAPs to fund their initial investments and marketing efforts. Established businesses can also use LAPs to refinance existing debts, acquire new assets, launch international operations, etc.
How can a Loan against Property be used for Business Expansion?
Businesses can use the funds acquired from a loan against property in several ways. These include:
1. Purchasing or upgrading machinery
Machinery is vital for enterprises, especially those in the manufacturing industry. The quality and efficiency of machinery also determine the quality and volume of goods you can manufacture. Newer technologies can further help you reduce breakdowns, accelerate the manufacturing process, streamline production, and minimise waste.
It can also prevent extra costs from piling up. Therefore, regularly upgrading your machinery is crucial. Loans against property can help you invest in new machinery and equipment comfortably to enhance production and stay competitive.
2. Invest in R&D
Research and development are essential to expanding a business. This typically involves prototyping and testing new products, researching your market, understanding customer preferences, etc. Effective R&D improves marketing and advertising, helps you better understand your target audiences, and creates targeted strategies that help you maintain a competitive edge. Loans against property can help you fund your research and development efforts, ensuring you can provide high-quality products to your customers.
3. Marketing and advertisement
Marketing and advertising help your business connect with your target audience. They often require investment to create or upgrading the website, hire employees to manage social media accounts, create brand partnerships with celebrities and influencers, and more. While these aspects are crucial to your business, they can also be very costly, sometimes requiring several lakhs worth of funding. Again, LAPs can help you access the funds you need to promote your brand and boost visibility.
4. Hiring skilled staff
Employees are the backbone of any business. They create marketing strategies, test products, engage with customers, and ensure every department works smoothly. As businesses grow, they also need to hire more staff to keep up with increased productivity requirements. However, this is a costly endeavor since employees need to be trained and require proper wages. Loans against property can help cover training costs, onboarding expenses, and salaries, allowing you to build a solid workforce without compromising cash flow.
5. Expand workspaces
A proper workspace is also crucial to your business’s productivity. This could be a workshop, corporate office space, research facility, or retail store. It could also involve renovating and expanding your current workspaces. Loans against property provide you with the capital required to invest in real estate, expansions, rent, infrastructure upgrades, etc.
What are the Benefits of LAPs?
Loans against property come with several benefits, including:
1. Long repayment tenures
Many financial institutions offer longer repayment tenures for LAPs, often extending between 15 and 20 years. This lowers your monthly EMI obligations, making it easier to manage cash flow.
2. Lower interest rates
LAPs are secured loans, which means your property acts as a security to back the loan up. This minimises the risk for lenders, enabling them to offer attractive LAP rates. Lower interest rates also contribute to lower EMIs and free up your budget for other business expenses.
3. Higher loan amounts
Loans against property for business expansion are attractive options for business owners since they can borrow much higher amounts than other loans. The amount you can borrow depends on the loan-to-value (LTV) ratio. Many financial institutions extend a loan of 70% of a property’s value. Depending on the collateral you offer, this number could be as high as Rs. 10 crores.
The bottom line
Loans against property are excellent resources for business expansion. They come with multiple usage options, high loan amounts, attractive interest rates, simple documentation, and long and flexible repayment tenures.
If you’re looking to avail of loan against property for business expansion, consider Tata Capital. Enjoy competitive rates, overdraft facilities, flexible terms, simple loans against property eligibility criteria, and more. To learn more about our LAP offerings, visit the official Tata Capital website or download the mobile app today!
FAQs
Yes, loans against property (LAP) can be used for various business requirements, such as buying machinery, upgrading real estate, investing in research and development, etc.
To avail of a LAP from Tata Capital, you must meet the following loan against property eligibility criteria:
First, You must be working in a Public Ltd. Co./ MNC/ Large Pvt. Ltd. Co./State Govt./ Central Govt. / PSU. Second, Your age must be between 23 and 65 years . Third, You must have a minimum occupational stability of 3 years
The interest rate for a MSME loan depends on several factors, such as the nature of your business, annual revenue, loan amount, tenure, etc. With Tata Capital, you can avail of affordable MSME loans, starting at just 16%.
17 December 2024
5 mins read
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