A "low interest" loan shouldn't mean you have very little interest in paying it back!
  • Commercial Property Loan

    Many people look to get a loan for an office space, but just don’t know how to go about it. Getting a home loan for a residential property is definitely more popular, easier to get and more widely provided by banks and financial institutions. On the other hand, getting a loan for commercial property is not that easy and the know-how of people in this regards is also quite limited.

    Purchase of Commercial property can be classified into two broad types. They are office space and retail outlet. These two sections can be further divided into two categories like – ready to occupy and under construction. When it comes to financially funding a commercial property under construction, lenders are usually apprehensive. One of the reasons behind this scepticism is that most commercial property buyers are 'investors'. There are times when some people buy commercial property for establishing their own office and business. In that case the lender feels more certain about providing the loan.

    Unfortunately, many banks or financial institutions (despite being well established) do not fund commercial properties, but there are banks which do fund commercial properties – primarily the ones which are ready over the ones under construction. It is advisable to run these checks with your loan advisor before you finalise a project.

    Differences Between Funding a Residential and Commercial Property:

    • The documents required in judging the loan eligibility is almost the same in both the cases.
    • Those availing a loan for commercial properties get lesser Loan to Value (LTV) ratio than the ones availing housing loans. For residential purposes the funding usually ranges between 75-90%, but in case of commercial properties it is limited to about 55%.
    • The Processing fee for residential home loans are usually a standard of Rs. 10,000. There are several housing loan schemes as per which borrowers get heavy discounts on processing fee. On the other hand, for commercial property loan a standard 1% of the loan amount is charged as loan processing fee. There is a chance that some lenders might have the authority to reduce it to a 0.5%.
    • When it comes to rate of interest, unfortunately, the loan borrowers of commercial property have to pay about a couple of percentage higher rate than the borrowers of housing loans. If the commercial property loans borrower takes some simultaneous things like another loan track the rate of interest can go a little more up.
    • Lenders are quite particular about the builder's profile and reputation especially if the property for which the loan is being availed is still being constructed. It is important to ascertain that when will the commercial property be ready and if it will be on time. It is likely that a commercial property will take lesser time to be constructed in comparison to a residential building and the number of occupants will be lesser too. For instance, there can be a single buyer for one entire floor of the property. Similarly, the number of toilets required in a commercial building is smaller and lesser than that of a residential building. To ensure that your property builder is reliable and will give possession as promised refer to his previous projects, market reputation and word of mouth from his previous customers.
    • Ensure that the commercial building is in compliance with every technical specification. Things like lifts, shafts, fire extinguishers, stairs, emergency exits should be properly made and make a note of a technically expert team verifying it thoroughly. As a commercial property, the inspection has to be flawless.
    • The builder needs to obtain all compulsory approvals, clearances from different legal departments and also other departments. It should be a no risk demolition on the property due to any remaining approval. This is applicable to even residential buildings it is stricter when it comes to commercial property.
    • The loan tenure is much lesser for commercial property in comparison to housing loans for residential property. While the loan tenure for housing loan could be as high as 30 years, but for commercial property loan it is mostly restricted to 10 years.
    • The loan margin is also not too much for commercial property loan when compared to housing loans. For example if you buy a commercial property worth 10 crores, you may get only an initial few crores as loan. You might be eligible for higher but some lenders fear the loan turning into a bad debt and hence they limit the loan margin.
    • If the buying cost is hiked by the builder to make the borrower to avail higher loan from the lender, it will be turned down by the evaluation team which the lender is likely to get. Most lenders have many experienced agents who determine the value of the property and
    • If the property is very old then it is extremely difficult to get it funded because of the risk related to the age of the building. There are also other issues like the building might not have a proper sanction plan, proper fire-exits and a series of other things which can now be mandatory in new policy of the bank providing loan. Check this with your adviser. Even if it is a well-known commercial building with large corporates inside, it might not be given a loan for by some lenders. Retail spaces are higher priced in context of rate per square foot in comparison to most commercial building.
    • The institution providing you with the loan, will have some specification about wanting to fund a minimum area in terms of square foot. For retail outlets, there are small where generally bank ATMs and other kiosks are located. These are called ‘vanilla’ areas. They can be as small as 100 sq ft, but as they are located within a retail space, even that area would be quite expensive and you could need a loan for the same. Mostly lenders do have an area specification also for which they can provide a loan. Different lenders will have different policies about this.
    • Remember, though acquiring a commercial property might be more expensive in terms of your monthly financial budget. This happens because the loan tenure is shorter and rate of interest is higher. The down payment that you have to pay from your own pocket is also higher because the loan quantum is low. But keeping all these factors aside, the 'return' on the investment in commercial property is always higher in comparison to residential property.

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    Commercial Property Loan Reviews

    • HDFC Limited
      0.5 4.0/5 "Great!"
      With HDFC limited I have taken home loan on 8 months before which was processed through them directly. They have approved for 8 lakhs but as of now I have taken only for 5 lakhs remaining 3 lakhs I will get later from their end. Due to shop will come in commercial loan so I have split the loan amount to get it. For the tenure of 15 years. The processing fee for 5000 rupees. The rate of interest 8.8%, they have sanctioned the loan within one month.
      Was this review helpful? 53
      , coimbatore
      Reviewed on Oct 15, 2019
    • Punjab National Bank
      Punjab National Bank
      "Good Service"
      0.5 3.0/5 "Satisfactory"
      I had taken a Property loan from PNBHFL since they where the only providing the loan against property, where the interest rate was also competitive, The process took a bit of a time but the person who came to collect the documents was professional and was helpful. The processing charges where nominal but their customer support was not that great.
      Was this review helpful? 12
      , new delhi
      Reviewed on May 03, 2019
    • HDFC Limited
      "Better response..."
      0.5 2.0/5 "Expected more"
      My requirement was 40lakkhs but the thing is I have already taken personal loan from ICICI Bank. I was looking for loan against property loan so, they HDFC ltd people were not willing to provide a loan. Even their interest rate was higher side so, I dropped my plan of taking an Home loan from HDFC ltd.
      Was this review helpful? 9
      , mumbai
      Reviewed on Mar 05, 2016
    • HDFC Limited
      0.5 4.0/5 "Great!"
      HDFC LTD contacted me for documents collection they collected all my documents. After completing the formalities I changed my mind . I was planning to purchase a housing loan for 50 lakhs. Instead of taking of housing loan I thought of taking a commercial loan . Rate of interest offered by them was 0.25% which is less than what SBI is offering and processing fee is also nominal.
      Was this review helpful? 10
      , nasik
      Reviewed on Jan 20, 2015
    • HDFC Limited
      "Proper communication would be helpful"
      0.5 3.0/5 "Satisfactory"
      I had finalized the property however I need commercial loan, hence I am looking for it. Initially, I had got the call from the officer. The response was quite good initially later on no proper response. My suggestion would be proper response should be there and good communication is required based on customer's requirements.
      Was this review helpful? 15
      , delhi
      Reviewed on Sep 22, 2014
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