Lease Rental Discounting (LRD) makes it possible to raise capital from leased properties. Learn how estimated rental income can be converted into immediate funds without selling the property. This guide analyzes eligibility, benefits, risks, and legal aspects in a practical, decision-friendly format. We also compare LRD with other financing options to clarify where it is strategically appropriate.
LRD (Lease Rental Discounting) Loan Overview
Over the past few decades, an increase in industrial parks, SEZs, IT parks, logistics hubs, & Infrastructural development has witnessed a significant transformation in the urban landscape. Simultaneously, increasing per capita income has led to a higher standard of living. These interlinked factors have directly accelerated real estate development across (residential, commercial, retail, and infrastructure) verticals. As a result of these economic developments, Lease Rental Discounting has emerged as a popular and scalable financial instrument.
What is an LRD Loan Facility?
LRD, full form Lease Rental Discounting, is a term loan. It is granted by Banks or other financial institutions to developers or individuals who have their property assets given on lease for a specific period of time and earn rental income. Loan amount is determined by discounting the future rental cash flows to their present value. With such a rental yield used as collateral against the loan amount.
Do you know? Your leased property can provide you with funds.
Yes, that’s correct. The rental income from your property can be used to raise capital for business expansion, purchasing assets, or even repaying existing loans. This is made possible through a debt product called Lease Rental Discounting (LRD). Popularly known as an LRD loan, it allows property owners to leverage future rental income and access funding without selling their asset.
For example, Mr. Raju, the owner of a shopping Mall in Delhi, utilised lease rental discounting funds to renovate his property. He secured a loan by leveraging his future rental income as collateral, enabling him to upgrade the mall, attract premium tenants, and subsequently increase his rental earnings.
LRD loan Benefits
- The facility allows property owners with immediate access to funds.
- The owner of the property does not have to pay the bank, but in return, the tenant of the property directly pays the bank the loan in the form of rental receipts through an escrow account every month.
- This facility gives a long-term solution to cash flow management as the lease/repayment is for longer tenures.
- LRD loan rate of interest depends upon the property value, repayment tenure, the credibility of the lessee, etc.
- LRD loan serves as a multi-purpose loan and can be used for business expansion, financing for the purchase of an asset or new property, or paying off loans
- Owners can access necessary funds without selling their property, which means they can benefit from any future appreciation in property value while simultaneously meeting their current financial needs.
LRD Loan Eligibility Criteria
There are no fixed criteria for eligibility, as it differs from institution to institution. Below is the most preferable one.
1. Age criteria:
The applicant must be 21 years or above but not more than 60 years in the case of a salaried person and 65 years in the case of a self-employed person.
2. Criteria for Borrower:
The borrower must possess a property which leased to a known brand or corporation. The loan is provided to salaried individuals, professionals, or even self-employed individuals.
3. Lease Agreement Period
The lease agreement period is very critical. An important factor for taking a lease rental discounting loan from a bank or NBFC. The bank may or may not provide a loan if the lease period is less than 5 years. This loan is given to rented properties with leases of 5 to 10 years.
4. CIBIL score:
LRD loan provides a loan to a borrower who has a creditworthy CIBIL score. CIBIL score and track record are the decisive factors for sanctioning or rejecting major loan applications.
Pre-requisites to Lease Rental Discounting
The following prerequisites should consider before applying for LRD Loan.
a. Corporate Tenants:
The tenant for the LRD loan should be financially fit to meet the obligations of the bank. That allows banks to ascertain whether or not future payments are likely to come. The banks only discount lease rentals belonging to renowned corporations or brands with a good credit rating.
b. Longer repayment period:
Secondly, the tenure of LRD is usually between five to seven years or can even go up to 10 years. Banks generally do not make short-term lease rental discounting loans. It is for this reason that the amount of loans and the repayment period are usually large. That is not possible to get paid off within a small tenure. Thus, LRD holds larger tenures of repayment.
c. Repayment Criteria
For the repayment of the loan, an escrow account is created. There is the participation of two or more parties, like the borrower, tenant, and banker.
The tenant will ask to transfer their rent to this account. The EMIs will be withdrawn from the same.
How to avail the LRD Loan Facility?
Availing Lease Rental Discounting involves several key steps:
1. Property Assessment
The Financial Institutions evaluate the borrower’s property to determine its current market value and the rental income it can generate.
2. Tenant Assessment
The financial stability and creditworthiness of the owner’s tenants are reviewed to ensure they can consistently pay rent.
3. Loan Approval
Based on the property’s value & expected rental income, the lender decides on how much loan amount to disburse. Usually ranging between 60% and 70%, it may increase based on the tenant’s profile.
4. Legal Documentation
The necessary legal papers are prepared and signed, taking into account the terms and conditions of the loan agreement.
5. Funds Disbursement
Once all documents are in place, the approved loan amount is transferred to the property owner.
Legal consideration of LRD
- Legal Title of the property must lie with the true owner, who avails the LRD facility
- A legally binding lease agreement deed must be signed between the owner and tenant, specifying the lease tenure, lease amount, and any escalation clause in the deed
- Tenant must be financially stable and able to complete the entire lease term without making any default
- Compliance with local regulatory law and rental regulations is crucial.
How is a Loan against Property different from Lease Rental Discounting?
A LAP (loan against Property) is the borrowing of a loan against the whole property as collateral and getting funds against the loan. LAP utilizes a higher amount of loan against the value of your property and can use the same for business purposes.
Whereas, in the Lease Rental Discounting, you get only a certain amount of loan against the lease amount that the lessee will pay. So, the loan is provided against future expected rentals, which should have a fixed and regular rental receipt.
LRD Comparison With Personal and Traditional Loan
Particulars | Personal Loan | Traditional Loan | Lease Rental Discounting |
Purpose of funds end use | Any purpose | Any purpose | Any purpose |
Collateral | Unsecured most of the time | property itself | Lease rental income from the property, or the property itself |
Interest rate | Higher due to the Unsecured loan amount | Depends on property value | Moderate, as the Loan is secured by rental income or property |
Source of Repayment | Personal Income | Personal Income or Rental Income | Rental Income |
Here is how we execute the LRD Funding Process. Let’s learn through a detailed case study.
At Conclusion
LRD, meaning Lease Rental Discounting (LRD), is a financial product that enables individuals to obtain funds by leveraging their leased properties. By leveraging future rental income, typically from a reputable tenant with a long-term lease of 5–10 years, borrowers can access immediate funds for business expansion, asset acquisition, or debt consolidation. With rental payments routed directly to the lender through an escrow mechanism, LRD loans offer both security and flexibility, making them a smart option for stable and growth-focused financing.
Terkar capital helps me. Thanks for sharing the article
Thanks for sharing the Brief Description of Lease Rental Discounting.
Hi,
We are glad to hear that you found the brief description of Lease Rental Discounting useful. If you have any further doubts or queries or if there’s anything else we can assist you with, please don’t hesitate to reach out.
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Looking for LRD of Rs 10 Cr
Dear Mr Amit Sir,
Thank you for the inputs. Definately we can explore the LRD facility. However we request you share your contact number for quick communication Or contact us here.
Thank you
Best Regards,
Team Terkar Capital
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