In the current market scenario where commercial property prices are skyrocketing, finding a suitable commercial space in a great location within budget is a difficult task and many businesses rely on rented properties today. The current commercial property owners, ones who had invested in buying commercial properties in early 2000s or before, have started to reap great benefits from their investment decision. While their buying decision has propelled them to accrue great returns today in a market where there is a great demand for rented commercial property, many of them are still not using their rental income to its full potential. Did you know this income can be used as a source of repayment to obtain a term loan? Surprised!? Let’s see how.

Lease rental discounting(LRD) is a loan offered against rental receivables over a period of time from a self owned commercial property. The loan is provided to the lesser based on the discounted value of the rentals and the underlying property value. The rent is considered as a source of repayment, which is credited via an escrow account to the lender directly by the occupant over stipulated lease period, generally up to 10 years or lesser. The monthly EMI is debited by the lender from the escrow account where the rent is deposited by the tenant. Funds from this product can be extremely handy for housewives, retired persons or individuals without any other regular income. The funds can be used for a variety of constructive purposes including marriage, financing business, higher education for children, purchasing new property or land.

It is important to understand that during the loan term, the borrower does not receive any rental as it is directly taken by the lending body from the lessee. In case of this product, it is vital that the pledged property should be clear of any pre-existing mortgage & technically viable for the lender, which means all plans sanctioned & all government approvals obtained. The borrower however, unlike in a home loan, does not enjoy any income tax benefits. In terms of funding, up to 70% of the market value of the property could be funded for a loan against future expected rental income, subject to the eligibility basis the rental received. This estimate must be evaluated by the lender before actual funding, for reduced risk of investment for the lenders.

While the rent received from commercial property can reap great returns over time, using lease rental discounting can enable you to use this monthly rent to obtain a loan which can be used for a number of purposes. Lease Rental Discounting can help to obtain and realise the true potential of the commercial property which you own. Having said this, borrowers should be careful of choosing their financial lending institutions to ensure they are getting best term loan product as an incorrect lending partner can lead to a loss of money and cause disappointment. On the other hand, choosing a good lending partner can help the borrower to a have great financial edge.

Ms Sukanya Kumar, Founder & Director, RetailLending.com