The leased properties can source you funds! Yes, you read it correctly. The leased properties can, however, give you funds. It can use for either expansion, purchase of assets or paying off other loans. Such loans can obtain through a debt product called Lease Rental Discounting (popularly known as LRD). Let us learn what is LRD loan in details.
LRD Loan is a type of term loan. It is offered against the rental receipts of the property. The property must lease 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 purchase of an asset or new property or paying off loans.
- The owner of the property does not have to pay to 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 property, repayment tenure, credibility of the lessee, etc.
RD 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 case of a salaried person and 65 years in 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. And 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 is a decisioning factor for sanctioning or rejecting major loan applications.
Pre-requisites to Lease Rental Discounting
The following pre-requisites should consider before applying for LRD Loan.
a. Corporate Tenants:
The tenant for 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 upto 10 years. Banks generally do not make short-term lease rental discounting loans. It is for the 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 participation of two or more parties like borrower, tenant and the banker.
The tenant will ask to transfer their rent in this account. The EMIs will be withdrawn from the same.
How is Loan against Property different from Lease Rental Discounting?
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.
Learn LRD through case study.
Why choose Terkar Capital?
Terkar Capital is among the top financial institution in India that provides a wide range of products to clients. It has provided after studying all the aspects of financials, CIBIL score, business plan, industry, sales, etc. We arrange conventional and non-conventional debt and equity funding solutions at a reasonable cost of borrowing. So whenever it is raising funds for corporates, Terkar Capital is ready to serve you at best!