What is a loan against property (LAP)?
A loan against property is a business loan you get if you own valuable personal or business property that can be pledged as collateral for the loan. Such a loan can be used to finance long-term business funding needs, business expansion plans, purchase new property and equipment, or refinance an existing loan.
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What is a secured business loan?
When you provide the lender with collateral in exchange for a business loan, that is a considered a secured business loan. It is “secured” because, in the off chance that you are unable to meet your loan terms or default on your loan, the lender will be able to recover their losses by taking possession of the collateral you provided in exchange for the loaned amount.
Secured business loans are different from unsecured ones as unsecured business loans do not require the borrower to provide the lender with collateral in exchange for the loan. However, due to this lack of collateral, lenders offer unsecured business loans at a higher interest rate, shorter loan tenure, and lower loan value compared to secured business loans.
Is a loan against property different from a secured business loan?
A loan against property is not different from a secured business loan. Rather, it is a type of secured business loan.
Lenders offer many kinds of secured business loans that require different collateral. A LAP is a secured business loan that you can get when you specifically put up property assets that you or your business may own as collateral for the loan.
Lenders calculate LAP amounts as a percentage of the current market value of the asset you pledged, and you can get a loan between 50-80% of the total value.
There are a few types of loans against property that you can get depending on your needs. These include loan against residential or commercial property, loan against property balance transfer, loan against property top-up, and loan against property overdraft.
Why do lenders require collateral to give me a business loan?
When a lender lends you a large loan amount, that carries considerable risk for them. The possibility that you may default on your loan means the lender could lose all the money they lent you. To make up for this potential loss, you must pledge collateral in exchange for a large loan amount so that in case you are unable to meet your loan obligations, the lender can recover their losses by selling your pledged assets.
In case you do not own any (or many) assets, lenders also offer unsecured business loans. These loans are of a smaller loan value, have a higher interest rate, and a shorter loan tenure but they do help you meet your immediate business needs and are comparatively easier to get than a secured business loan or a loan against property.
A loan against property is not different from a secured business loan. It is a type of secured business loan you get when you pledge property assets that you own in exchange for a business loan from a lender.
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