Commercial Property Loan Eligibility, Interest Rates And How To Apply

Commercial property loans are offered by banks and financial institutions against the mortgage of a commercial property. So, if you want to expand, renovate or purchase a business site, a commercial property loan might be your best bet. 

In this post, you will learn about eligibility, documents required, interest rates, benefits and how to apply for a commercial property loan. Read on! 

Eligibility For A Commercial Property Loan

A commercial property loan differs from its residential counterpart because only self-employed individuals can apply for this credit. 

The applicant category for self-employed borrowers is further divided into two categories. They are as follows:

SEP (Self-Employed Professionals) 

• Consultants
• Architects
• Doctors
• Lawyers
• Chartered Accountants
• Company Secretaries 

SENP (Self-Employed Non-Professionals) 

• Contractors
• Businessmen
• Commission agents
• Traders

Although commercial loan eligibility criteria vary from lender to lender, there are a few common prerequisites that most financial institutions follow. They are as follows:

• Applicant’s Age: The age of an applicant applying for this loan must be between 25 and 70 years. 
• Income: Borrowers have to provide a stable income source to be eligible for this type of financial assistance. 
• Citizenship: The applicant must be an Indian resident residing in the country.

It is imperative for borrowers to check the above-mentioned eligibility parameters and confirm that they meet them. Failure to meet these criteria can result in the rejection of a loan application.

Documents Required For A Commercial Property Loan

Besides fulfilling the eligibility criteria, borrowers must keep the following commercial property loan documents handy:

1. KYC documents, such as PAN card, Aadhaar card, driver’s license, voter ID or any other government-issued ID proof.
2. Borrowers need to submit the following documents as income proof:

• ITRs attested by a CA along with business income computation for the previous 3 assessment years.
• Account statement of savings and current account.
• Balance sheet and P/L statement of the previous 3 years attested by a CA.

3. Property-related documents, such as allotment letter and title deed.
4. A few other documents, including:

• MoA and AoA in case of companies.
• Business profile.
• List of Company Secretaries and Chartered Accountants.
• Partnership deed.
• Details of pre-existing loans.
• Passport size photograph of applicants.
• Cheque to pay the processing fee.

The financial institution might ask for a few additional documents if needed.

Things To Consider Before Applying For A Commercial Property Loan

Now that you are aware of the basic requirements to obtain a commercial property loan, let us dive in further to discuss a few crucial things you should consider before proceeding to apply for this financing:

• The LTV (Loan To Value) ratio

The percentage of the property’s market value that the financial institution is ready to lend is the LTV ratio. This ratio typically varies from lender to lender. 

While the LTV for housing loans is on the higher side, lenders usually agree to offer up to 55% of the asset’s value in the case of a commercial property loan. 

• Interest Rate

Typically, financial institutions levy a higher rate of interest for commercial property loans. Depending upon the lender you choose, this rate may range between 9-15% per annum. You must note that in the case of a higher interest rate, individuals have to pay higher EMIs, which will affect the affordability factor of financing. 

• Repayment Tenure

This is yet another crucial thing to consider before choosing a lender and applying for a commercial property loan. The repayment tenure of this loan will decide your EMI outgo and the overall borrowing cost. Note that although a higher repayment tenure reduces monthly instalment amount, it increases the interest outgo. Meanwhile, a shorter term will reduce your cost of borrowing. 

• Loan Processing Fees

Every financial institution tends to charge a processing fee when you approach them for a commercial loan. Again, the processing fees vary from lender to lender. Thus, choosing a lender charging the lowest processing fee is crucial. 

In this regard, you can approach Navi for a commercial property loan and enjoy low processing fees, competitive interest rates and flexible repayment tenure. Receive on spot approval for your loan application through our mobile-based application. Download the Navi app on Android or iOS and initiate the loan application procedure. 

How To Apply For A Commercial Property Loan At Navi

Applying for a commercial property loan is simple and convenient. Follow these steps to do so:

• Step 1: Download the Navi app.
• Step 2:  After that, create an account by providing your PAN and personal details. You must also enter your employment details and monthly income.
• Step 3: Enter the property details in the relevant fields and give a permit to the app to access your messages, location data, contacts, and more. 

After providing all these details, your account will be active, and you will receive your commercial loan eligibility details. Then, proceed with the application submission step and wait for the approval. 

You will also have to allow auto-debit facility from your bank to repay the loan amount, which cannot be changed while you serve the loan term. Furthermore, the app will provide you with all the details regarding EMIs and repayment due dates.

Also Read: What Is No Cost EMI And How Does it Work?

Benefits Of Taking Commercial Property Loan From Navi

Navi’s mortgage loans bring along a host of benefits for borrowers, including the following:

• Completely Paperless Process

From applying for a mortgage loan to its disbursal, the entire process is carried out digitally. You won’t have to visit any branch and apply for financing in person, which saves both time and effort.

• High-Value Loan Amount

With Navi, you can obtain a mortgage loan of up to Rs. 10 crore. Simply meet the eligibility parameters and keep the documents handy beforehand.

• Competitive Interest Rates

The interest rate at Navi starts at 6.46% per annum. Furthermore, with a flexible repayment tenure ranging up to 15 years, you can repay the loan amount comfortably.

Commercial Property Loan Interest Rates

Here are the various interest rates charged by banks and financial institutions on commercial property loans:

Lender	Interest rate (starting from)
Navi	6.46%
ICICI Bank	8.35%
HDFC Bank	7.50%
SBI	1.45% + 1 year MCLR
Axis Bank	7.90%

Commercial Property Loan Fees And Charges

Mentioned below is a tabular representation of commercial property loan fees and charges of various banks and financial institutions.

Lender	Processing Fee	Part/Prepayment Charges
Navi	Up to 2% of the loan amount	NIL – for floating-rate loans for non-business purposes2% of the prepaid amount – for loans taken for business purposes
ICICI Bank	1% + Taxes	4% + Taxes
HDFC Bank	Max. 1% of the loan amount	2.5% of the outstanding principal – for floating-rate loans for business purposesNIL – for floating-rate loans for other purposes
SBI	1.01% of the loan amount	1% + GST
Axis Bank	1% of the loan amount	3% on the excess amount repaid if more than 25% of the outstanding principal is repaid in a quarter.

Final Word

A commercial property loan could be a suitable financing option for self-employed individuals. With its high-quantum credit coupled with lower interest rates and a flexible tenure, this type of financial assistance could be beneficial for business expansion and a host of other business-related purposes.

FAQs On Commercial Property Loans

1. Can I claim tax benefits on commercial property loans?

As per the Income Tax Act, no limit is defined for interest deductions on commercial property loans. Thus, you can claim a tax deduction on the entire interest amount. Furthermore, the prepayment charges and processing fee for a commercial property loan are also considered as interest and are eligible for tax deductions.

2. Is insurance necessary to obtain a commercial property loan?

There is no directive as per the RBI to mandatorily purchase insurance coverage to obtain a commercial property loan. However, it is advisable for borrowers to insure their properties against any natural or manmade calamities.

3. Why can’t salaried professionals take a commercial property loan?

A commercial property loan is meant to be a financing option for business owners who want to mortgage their business property and use the proceeds for business-related purposes. Hence, this credit option is only available to self-employed people.

4. Do I need to have a co-applicant?

It is mandatory. If you are a sole proprietor, you can apply for a commercial property loan alone. However, if it is a partnership firm, then all the partners will have to sign up as co-applicants. 

5. How can I repay the loan?

There are multiple ways for you to repay the loan. Some lenders ask individuals to enable the auto-debit feature. This leads to easy repayments, as the borrower does not need to do anything. However, the typical methods of loan repayment are via ECS or post-dated cheques.

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