How is Loan Against Property different from Business Loan?

There are times when Loan Against Property (LAP) is often mistaken as Business Loan (BL). However, both of them are two different kind of loans.
In case of Loan Against Property, you pledge your property to meet your personal or business goals. Loan Against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.
On the contrary, a Business Loan is a type of unsecured loan, that gives you access to credit that can be paid back over an agreed time along with the interest, without any security against it.

There are a lot of other differences between both the categories of loans. Let us understand this by having a detailed comparison as follows:

1. LAP has a maximum tenure of 15 years, whereas, BL has a maximum tenure of 4 years.
2. LAP has a lower ROI of around 9%, whereas, BL has a higher ROI of around 15%.
3. LAP has a lower EMI amount due to long tenure, whereas, BL has a higher EMI amount due to short tenure.
4. LAP is availed against collateral as it falls under the category of secured loans, whereas, BL is availed against banking, net profit of the company as it falls under the category of unsecured loans.
5. In LAP, you can avail a high loan amount from a single institution i.e. 70%of the property valuation. On the other hand, in BL, you can avail a maximum loan amount of 50 Lacs from a single institution.
6. In LAP, the creditability of the person availing loan is rated high if there are 1-2 LAPs. Whereas, in BL, the creditability of the person availing loan is rated low if there are more than 2 ongoing BLs.
7. In LAP, foreclosure of 0% from own sources is possible in individual borrower, whereas foreclosure of 5% is applicable in BL.
8. In LAP, you get a benefit of availing & using cash-credit & over-draft limits when needed & paying the interests according to utilisation of the sanctioned limits. On the other hand, there is no such benefit in BL.

A tabular difference will enhance our understanding of the different categories of loans:

LOAN AGAINST PROPERTY

BUSINESS LOAN

LAP has a maximum tenure of 15 years BL has a maximum tenure of 4 years
LAP has a lower ROI of around 9% BL has a higher ROI of around 15%
LAP has a lower EMI amount due to long tenure BL has a higher EMI amount due to short tenure
This type of loan is availed against collateral i.e. property and is therefore categorised as a secured loan This type of loan is availed against banking, net profit of the company and is therefore categorised as an unsecured loan
One can avail a higher loan amount from a single institution (70% of the property valuation) One can avail a maximum loan amount of 50Lacs from a single institution
Creditability of the person availing loan is rated high if there are – 1 or 2 LAPs Creditability of the person availing loan is rated low if there are more than 2 ongoing BLs
Foreclosure of 0% from own sources is possible in individual borrower Foreclosure of 5% is applicable
Cash-credit & Over-draft limits are a part of LAP and also gives one a freedom of paying the interests according to the utilisation of the sanctioned limit There is no such benefit in BL
By | 2018-04-20T10:59:08+00:00 April 20th, 2018|Blog|
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