Lease Rental Discounting

It is a term loan. The borrower gets this loan based on their income from the rented property. A major aspect that affects the LRD loan is the availability of rent receipts from the tenants or any other relevant proof of receiving rent. So, there are several other factors that matter when obtaining a lease rental discounting loan.

Learn more about What is LRD loan?

a. Criteria

• It is a secured loan in which the rented property is the collateral.
• Provide loans against future expected rent.
• Leased property with a lease of 5 to 10 years provided with this loan.

b. Borrowers

• The loan is provided to individuals who are salaried, professionals, or even self-employed.
• In the case of firms, the loan is provided to proprietorship and partnership firms, limited and private limited companies.
• Preferred borrowers are the owners of properties rented to known brands and corporates. So, the loan is also provided to the retail segment.

c. Loan Amount

• The minimum amount of loan provided is between 20L to 1Cr. It varies among the loan-providing organizations. Thus, the maximum amount can go up to 10 Cr or more.
• One of the parameters considered while providing the lease rental discounting loan is the EMI amount. With EMI less than 80% of the rent that is received every month, the loan is provided as per the tenure.
• The loan amount is also decided based on the overall rental income for the expected tenure. Less than 80% of the expected amount of rental income over the tenure period is sanctioned. The tenure is less than the expiry of the lease.
• Another parameter used to determine the loan amount is the market value of the property. The amount of loan provided in this way is less than 70% of the property of the rented property.
• The maximum tenure on a lease rental discounting loan is between 10 to 15 years. It can always be less than that.

d. Repayment of the Loan

• For the repayment of the loan, an escrow account is created in the name of the borrower.
• From this account, the EMI amount will be withdrawn. It is also the account in which the tenant/s will transfer their rent.
• The lease rental discounting interest rate is in the same range as property loans. It varies from 7% to 11%.

The eligibility criteria for the loan differ from organization to organization. There are certain factors as well that will affect the eligibility criteria for the loan. A few of the general parameters are listed as follows:

• The income of the applicant should be stable.
• Age criteria:
  • For salaried applicants: 21 to 60
  • For self-employed applicants: 21 to 65
• Other liabilities that come along or that might occur in the case of loans taken by the individual or firms.

At the time of application, there are a few things that must be kept in mind by the applicant. Some major pointers are listed as follows:

• The property must be legitimate and registered. Unregistered properties are unlikely to get the loan sanctioned.
• The value of the borrower’s property must rectify the required amount of loan.
• The borrower must be able to pay off the loan.
• Other assets owned by the borrower must also be specified to the lender.
• The property cannot be sold until the loan is paid off.
• The rented property against which the loan is taken should be ensured.
• If the loan is not paid off within the tenure, the institution has the right to put the property on an auction and retrieve the loan amount.

Applying for a LRD loan, requires several documents to the lending institution. These documents varies from case to case. A list of important documents is given as follows:

• A completely filled out application form for the loan.
• Recent photographs of the applicant.
• For salaried individuals:
  • 3 to 6 months of salary slips.
  • Income Tax Returns proof or latest Form No. 16.
  • Bank statement for the last 6 months of the salary account.
• For self-employed individuals and firms:
  • Business profile of the company.
  • Memorandum of Association (MoA)
  • Articles of Association (AOA)
  • Partnership deed
  • Income Tax Returns of the company for the last 3 years
  • Profit and loss statement
  • Balance sheets certified and audited by a Chartered Accountant.

Note:The application must be signed by all the directors of the board if the loan is being taken for the firm.