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Starting and sustaining a business are challenging tasks. Funding is an important aspect to consider when it comes to running a business smoothly, for which there are select credit tools available.

Lenders offer business loans to assist in establishing and running of businesses. However, it is not the only loan type to address your business expenses. Loans Against Property are also good options for business owners as the interest rate of such loans is competitive, and the sanctioned amount can go as high as Rs.5 Crore* or higher as you may need (depending on your eligibility).

The question now is what type of loan suits your need better and can get you the best loan terms in the long run. Read on to get a clearer insight into both.

A Loan Against Property is a loan sanctioned against a property that serves as security. These loans are applicable for both residential and commercial properties. Since Loans Against Property are secured, lenders offer more competitive rates – often lower than that of a business loan. Further, the funds released under a Loan Against Property can be utilised to meet all kinds of expenses.

A business loan is an unsecured loan that allows borrowers to avail of funds without pledging any collateral. The funds availed of must be leveraged for expanding operations, buying tools and machinery, or boosting working capital, among other business-related needs.

Here are the differences between a Loan Against Property and a Business Loan:

  • Business loans are unsecured loans as they are sanctioned without any collateral in possession. Thus, business loans involve a risk factor. Lenders, therefore, charge a high rate of interest on these loans. On the other hand, a Loan Against Property is a secured loan and therefore, can be availed of at a more competitive interest rate than a business loan.
  • Since business loans are unsecured loans, lenders generally do not agree to release a hefty amount under these loans. On the other hand, a Loan Against Property sanction is sizeable, given its secured nature.
  • The tenor for a business loan is much shorter than that for a Loan Against Property. One can pay off a Loan Against Property over 18 years. However, business loans are usually generally paid off within 7 years from the date of disbursal.
  • A Loan Against Property can be used to meet all kinds of expenses, unlike business loans. Business loans are meant to address only business-related expenses.

If you need financing to start a business or expand an existing one, a business loan is not your only option. In fact, if you need a sizeable loan amount that can be paid off over a long tenor. Opting for a Loan Against Property would be a far better choice than availing of a business loan. 

*Terms and conditions apply

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