Overview LRD Loans
The leased properties can source you funds!! Yes, you read it correctly. The leased properties can, however, give you funds. It can be used for either expansion, purchase of assets, or paying off other loans. Such loans can be obtained through a debt product called Lease Rental Discounting (popularly known as LRD). Let us understand the LRD loan facility in detail.
LRD full-form lease rental discounting is a type of term loan. It is a type of secured debt funding that is offered based on the rental income of the property. The property must be leased for 5-10 years. And the lessee or tenant should be a well-known brand.
Benefits of LRD loan
- LRD loan serves as a multi-purpose loan and can use the funds for business expansion, financing for the purchase of an asset or new property, or paying off loans.
- 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.
- The Rate of Interest in LRD depends upon the value of the property, repayment tenure, the credibility of the lessee, etc.
LRD loan Eligibility
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 corporates. The loan has provided to salaried individuals, professionals or even self-employed.
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 is usually large. That is not possible to get paid off within small tenures. 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 is a Loan against Property different from Lease Rental Discounting?
A loan against Property is the borrowing of a loan against the whole property as collateral and getting funds against the loan. LAP utilizes the 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 the lessee will pay. So, the loan is provided against future expected rentals which should have a fixed and regular rental receipt.
Understand the LRD Funding Process through a case study.
What is the process to avail LRD facility?
Why choose Terkar Capital?
Lease Rental Discounting (LRD) is a financial product that enables individuals to obtain funds by leveraging their leased properties. The loan is offered based on the rental receipts of the property, with a lease period of 5-10 years and a well-known brand as the tenant. LRD loans provide flexibility for business expansion, asset purchase, or loan repayment, with the tenant directly paying the bank through an escrow account.
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.
Thanks & Regards,
Team Terkar Capital
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