Real Estate as an Asset: Using Your Property to Secure Business Funding

Introduction

One of the biggest hurdles faced by most business owners is funding. Most opt to either get investors or go for traditional loans. One very overlooked method of funding is via real estate. You can Mortgage your assets be it commercial property, industrial property or residential property to secure funding. There are different methods through which you can use your property to secure funding. One such method is Loan Against property. In this blog we’ll explore how you can secure funding by getting a Loan Against Property along with what lenders look for and the risks and rewards.

Understanding Real Estate as an Asset

Real Estate is considered to be one of the most reliable forms of asset. It is tangible, meaning it is something you can touch and feel. This tangibility also provides security and stability. The security and stability branches from the fact that it is an effective hedge against investment. Property value usually rises with inflation but the mortgage doesn’t.

There is also a control over value. By making improvements to improve property appeal, you can increase the value of your asset. Thus, you can improve the value of the asset without having to rely on market forces.

Real Estate has four main categories- Residential, Commercial, Industrial and land. Any of these can be Mortgaged to fund your business through LAP.

Why use real estate to secure funding

Real is something that would stay idle if not utilised. People usually sell their property to raise funds. That is not the only way you can use real estate to get your funding. LAP is one method to take complete advantage of your properties without actually selling them.

LAP is a secure loan where you can use your property as collateral to secure loans. Being a secured loan, it reduces the lender’s risk which directly affects the terms and conditions of the loan. The interest rates are lower, the funds secured is higher, the repayment duration is longer etc.

The lower interest rates are one of the biggest benefits of LAP. More often than not people end up paying a huge amount of money as interest when they get a loan. The lowered interest rates are a relief from that. You are able to secure loans at competitive interest rates due to the decreased risk that lenders face. Lenders face lesser risk when you offer a collateral. These reduced interest rates help you manage your payments better and makes LAP an ideal choice for both your personal and business purposes.

When you Mortgage an asset to secure funding, the amount you get is usually 50%-65% of the property’s value. So, the higher the value of the property, higher the amount of funds secured. This aspect is very beneficial for business people who are looking to secure large amounts of funding for expansion, big purchases or long-term investments.

Another advantage of LAP is that it’s a multipurpose loan. Applying for a Loan Against Property is not limited to just business people or for business purposes. Once secured, the loan amount can be used for anything and everything. It could be for personal needs like funding your children’s education, medical expenses, emergency expenses etc.

What do lenders look for

When using your Real Estate for securing funding, there are certain things that the lenders look for. They check your CIBIL score (A score of over 700 is considered ideal), stability of your income, your repayment capacity and any other existing debt that you may have.

From the Real Estate point of view, lenders valuate the property, check the papers of the property to confirm ownership, check if its free from disputes, the legality of the property etc. All of this is done to avoid problems at later periods of time.

Risks and Rewards

In every Yin there’s a little Yang and in every Yang there’s a little Yin. Similarly, using your Real Estate to secure funding has both risks and rewards. The competitive interest rates, higher loan amounts, adjustable loan amounts, multipurpose utility, being able to hold your ownership over the asset are all rewards.

The risks include problems in valuation, lengthy approval process, risk of losing the property etc.

The problems in valuation are mostly due to the fact that each lender has its own valuation process and criteria. So, what you think is the value of the property might end up becoming different from what they valuate.

It takes a long time for your loan to get approved under LAP. Everything, starting from background checks on the person applying to detailed evaluation of the property Mortgaged takes a lot of time.

The risk of losing your property is low but not zero. Banks usually offer alternatives upon defaulting payments and seizing of property is usually a last option resort.

Conclusion

Using your Real Estate is possibly one of the best ways to secure funding. By using the value of your assets, you gain access to funding that might offer more favourable terms than any other source out there. When used wisely, this could end up being the key to your business’s financial needs.