Lease Rental Discounting loan (LRD) is a type of loan in which you can avail loans on the basis of future rental income, value of the property and discounted value of rentals. It is granted against the rental receipts from tenant.
It helps the owners to utilize their property in a much more effective way. One can take one loan against the capital value of the property. The other loan is secured by the cash flow that the questionable property might produce. Therefore, opting for such loans provide much required liquidity.
For granting such loans, property is not mortgaged with the bank which makes it a better option as compared to the loan against property. If you are earning rent out of a commercial property which is occupied by the tenants, certainly the tenants would have agreed upon a lease agreement for few years. The bank evaluates the total rent amount which you derive from the tenant within the course of lease term. The rate for this type of loan differs from one bank to another bank. The variation in the interest rate may depend on the loan amount, type of property and the rental revenues.
The pre-payment of the loan can be done at any given time after six months from the date of final disbursement of the loan. The Foreclosure charges will be charged as per the applicability.
Address and ID proof; Proof of Business such as registration proof, lease agreement, latest rent receipts, one year bank statement, balance sheet; Company proof are some of the essential documents required to apply for LRD loan. However, the requirement of the documents too is not similar for all the banks.
Other Requirements For Availing Such Loan
The LRD loan is as crucial as the certainty of future cash flow. Therefore, it is the duty of the banks to make sure that the Corporate tenant is financially able to meet the expectations of the bank. The banks can easily determine the possibility of future payments since they are publically traded entities, therefore availing important information about them is not difficult. On the basis of the analysis, banks choose to discount lease rentals to established corporations with good credit rating only. So, it is mandatory for the corporations to have decent credit rating.
Banks abstain from making any short term lease rental discounting loan. It also ensures the steadiness of the monthly payments for which the tenants must sign the agreement which they need to adhere to. In these agreements the mention of lock in period is mandatory. It signifies the period in which the tenant is refrained from abandoning the property. As a matter of fact, Banks avail the funds for this specific period only.
These are generally used by:-
- The Developers- It is widely used by the Developers of industrial complexes. This is because the builders can recover the entire money they invested in the project. Thus, it saves them from undergoing any financial loss, which is a major concern for the Developers.
- Real Estate Investment Trusts- As compared to the regular residential rentals, the rentals that can be derived from the commercial buildings such as shopping complexes are way higher. Therefore, it is obvious that the Real Estate Investment Trusts have a preference for such properties. After obtaining the property and discounting the lease rentals, the profits can be used for investment in other properties.
- Investors with High Net worth- It is nearly impossible for a common man to purchase the properties with lease rental agreements. They may not even have the capability to look for corporate tenants and get the loan term lease with fixed periods signed. Whereas the individuals with high net worth can certainly go for it, to utilize for investment.
If you wish to apply for such loans, seeking the valuable support and guidance of the Loan Service Provider or professional related with any aspect of loan dealing would we prudent.