Business Loan or LAP: What Would be Best to Fund Your Growing Business Needs?

You may want to kick-start an entrepreneurial venture, or may just wish to expand your already existing business, you may want to buy some fixed assets, or might need to meet the operating expenses of your enterprise; whatever is it that you need, a quick loan can often help you gain access to additional funds. When it comes to borrowing money for business purposes, two types of credit prove to be the most cost-effective.

1. Business Loan

It is essentially a Personal Loan and is unsecured. This type of loan can be conveniently used to meet a wide array of purposes including but not limited to:

• Purchasing Equipment
• Buying Inventory
• Expanding Operations
• Meeting Working Capital Needs

2. Loan Against Property

Also known as a mortgage loan, it is a secured loan, wherein as the borrower, you will need to offer a loan against commercial property, such as an office space, an industrial warehouse, a business complex or a shopping complex, as collateral. While the ownership of the property will remain with you, you ought to repay the loan amount in full, complete with the credit to get back the documents pertaining the ownership. More often than not, a Loan Against Property (LAP) is acquired to meet one of the following business-related purposes:

• Developing/Redeveloping the Property
• Refinancing
• Acquisition

Now that you are aware of the basics of both, Business Loan as well as Loans Against Property, let us compare these two in light of some relevant aspects.

Tenure

Business Loans are short-term loans and are usually offered for a period of 1 to 5 years. Loan Against Property, on the other hand, can be procured for a more extended period ranging between 5 and 20 years.

Loan Amount

When it comes to Business Loans, depending on your repayment history and creditworthiness, you can expect to get a loan of up to 50 Lakhs. The amount disbursed in case of LAP is based on the market value of the property offered as collateral. In a vast majority of cases, lenders provide 40 to 90% of the value of the property as the loan amount.

Interest Rate

Since Business Loans are unsecured, the lenders are at a higher risk, which is why they charge a high-interest rate, often ranging from 12 to 30%. LAP assures the security of the lender’s money and is therefore offered at a comparatively lower price, starting from 9%. You can compare the best loan against property interest rates from top lenders.

Availability

If your business enjoys good returns, and you have a respectable credit score of at least 750 or above, getting a Business Loan will prove to be a piece of cake. Most leading banks and online lenders across India, now offer Business Loans in as little as 3-4 days. Getting your hands on a LAP might prove to be an uphill task in some cases due to the increased number of steps involved in the same. Right from proving your ownership to the property to assisting the bank in getting an estimation of the market value of the property, everything needs to be taken care of. This may prove to be cumbersome in some cases.

Our Verdict

Now that we have thrown some light on the critical aspects related to both Business Loans as well as Loans Against Property, we believe the type of loan you must take depends on the loan amount that you are looking for, as well as the tenure that you wish to make the loan for.

A longer tenure, like in the case of LAP may help decrease the amount per equated monthly instalment that you need to pay; however, you must have collateral at your disposal in order to procure this credit. On the other hand, if you are someone who is on the lookout for quick access to funds, you may want to apply for a Business Loan; however, you will need to have a strong credit history to be eligible for the same.

The situation and the needs of every borrower differ widely and need due diligence before they can pick the most appropriate credit alternative.

Also Read : 5 Amazing Ideas to Build an Attractive Office and How a Loan Against Property Can Help

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