You can take loans on the rent receivables from your property, says Balaji Rao
Loans are of many types and are availed for many reasons. Banks also offer loans on rent receivables too if you own a property and particularly if you own a large property and are receiving a regular rent.
All you need is to own a free-hold commercial or residential property that is let out on rent. The rents must be received for a particular period of time through a formal agreement. For properties that are let out, banks usually prefer commercial properties where the tenants are large companies or corporates that would have entered into a long-term rental commitment with the owner.
If you are in need of some funds for any purpose, you can route your rents receivable to a bank and take a loan on the amount. The quantum of loan differs from bank to bank. While a few offer about 50 per cent of the prevailing market value of the property, some banks offer up to 80 per cent of the market value.
Some banks sanction the loans on the rent receivables based on the tenure of the rental agreement. For instance, if you have rented your property to a company that has entered into an agreement with you for a period of five years and the rent is Rs. 50,000 per month, then the total future rent receivable would be Rs. 30 lakh. The bank will offer a loan on this receivable, which could be up to 80 per cent. The loan quantum could vary among different banks. The loan tenure ranges from one year to about ten years, which would again depend upon the tenure of rental agreements. In situations where there are several tenants with different rental agreements of different tenures, the loan can be availed separately.
Further, it has to be understood that the loan offered will be a term loan for a predetermined amount with a separate account opened (an Escrow account) for this purpose. In case the rent receivable is Rs. 50,000 per mont, and the EMI is Rs. 30,000, the bank will adjust the EMI from the rent credited and the rest is free to be withdrawn by the borrower.
On the documentation front, some banks prefer to obtain an official letter from the tenants to remit the rent directly to the bank after the loan is sanctioned or they could enter into a tripartite agreement that involves the owner, tenant and the bank, ensuring that the rents are directly remitted.
The sanctioning is done after appraising the borrower’s credentials and financial strength and credibility. Besides these factors, some banks could ask for your IT returns. The building should also be built as per municipal approvals and should have obtained necessary NOCs.
The borrower will have to mortgage the property to the lending banker, which is a primary requisite.
Almost all banks, both public sector and private sector, offer this facility.