01 May, 2018 Non Home Loans
In today’s era, finance industry has become quite matured in terms of providing all sorts of lending options, tailored to cater specific requirements of the borrowers. Financers understand that a customer can face any number of expenses; planned or
In today’s era, finance industry has become quite matured in terms of providing all sorts of lending options, tailored to cater specific requirements of the borrowers. Financers understand that a customer can face any number of expenses; planned or unplanned, and to cater such needs there are different kinds of secured or unsecured loan options available to be availed. Two such most popular options are Loan Against Property and Business Loans.
Understanding the difference:
Loan Against Property:
Loan Against Property, as the name implies, is a loan availed against a property that is kept mortgaged. Hence, it’s a secured form of a loan. Suppose a customer is owning a property and is in need of some urgent funds, he can opt for this loan option by mortgaging his property to the financer and avail the required funds. An important thing to note here is that the property should be self-occupied property and the amount of loan to be approved would depend on both repayment capacity of the borrower and the value of the property; value of the property should be enough to cover the amount of loan to be availed.
Loan Against property can be used for multiple purposes, but the purpose has to be declared beforehand to the financers and the availed loan amount must not be utilized for any illegal activity. Mostly this product is used for business needs; suppose one wants to expand his business or LAP can be used for personal uses like marriage or child’s education; it can prove to be quite helpful under circumstances when an unexpected expense knocks your doors like a medical emergency.
Business loans are more focused towards fulfilling only business requirements like expanding the business, purchasing business equipment etc. These loans may or may not be secured loans depending upon the nature of the business and nature of the loan. Various types of business loans that are easily available are Term loans, Working-capital Loans, Equipment Financing loans like Plant and Machinery loans or Medical equipment loans, depending on the need of a customer, he/she can pick the right option.
Choosing between LAP or Business loan:
When one has a plethora of financing options available in front of him, it becomes very important to choose the right option that could precisely fulfill one’s requirement without overburdening him/her with an overpriced product option or getting him under the risk of giving unnecessary collaterals.
One should opt for Loan Against Property when he or she owns a property and wants to leverage the value of that property to get access to quick loan, keeping the property as a mortgage. One important point to be noted here is that the total loan eligibility gets restricted with respect to the value of the property to be mortgaged, irrespective of the repayment capacity of the individual. This type of loan becomes an easy option for those who run the small business and requires some amount to either start another business or to invest in the current business for expansion. Besides this, LAP also becomes a preferred choice of the product when the customer is in need of urgent liquidity for personal reasons like marriage, child’s education or even doing some improvement work in the home.
One should go for Business Loans when in need of relatively good amount of funds and can get access to the same if he/she can show decent years of continuity in current business with a good track record in terms of growth and sustainability. In these types of loans, banks or NBFCs will not only judge the customer by their personal creditworthiness but also by current business’s creditworthiness, by looking at the past records of loan repayments associated with both owner and business. The advantage here is that the value of the loan that can be accessible is not dependent on the value of owner’s residential property or business’s commercial property. Although this may not be equally true when it comes to secured business loans where the customer has to keep collaterals against the value of the loan.
Thus, it is recommended that customers must go through a deep analysis of his requirements and accordingly make their decision on what kind of product do they actually need, as it can be easily seen that there is huge availability of credit options available but the customer needs to make the right choice to make maximum benefit out of them.