Real Estate

What is a Loan Against Commercial Property and How Does it Work?

The commercial real estate market in India is estimated to grow at a CAGR of 13% during 2022-27. But the loan against property market, for both residential and commercial real estate, is predicted to see over 14% CAGR between 2022 and 2026. While commercial property can be a good way to increase your earnings, via rent or by establishing a business in that space, a loan against commercial property can offer you funding for multiple needs.

What is Loan Against Commercial Property?

A loan against a commercial property requires you to pledge your commercial property, whether constructed or a plot of land, as collateral or security for the purposes of borrowing funds from a financial institution. The loan amount that you qualify for will then depend on the market value of the commercial property.

The interest rates are a slightly lower for such loans, compared to loans that do not require collateral, since the bank has your commercial property as security. The loan amount can be used for any purpose, including the education of children, marriage, debt repayment or paying for an urgent medical expense. You can also apply for a home loan against property.

Most often, such loans are taken for business expansion, fulfil working capital needs, or other profit-generating purposes. The lender may also provide the loan for other purposes as specified under their terms and conditions.

How Does It Work

The loan against commercial property is available for everyone, whether you are a government employee, a salaried individual from the private sector or self-employed. Here’s a look at how this loan works:


A commercial property you own must be kept as collateral. To start with, you need to fill and submit the loan application form, along with the necessary documents. These could include your identity proof, proof of ownership of the property, income proof, etc. The team of experts from the lending institution will review the loan application and verify the documentation submitted before approving the loan. Apart from the value of the property, factors such as your age and current income will also be considered before the loan is sanctioned.

Loan Amount

If the documents provided are satisfactory and the loan amount needed by you fits the valuation of your commercial property, the financial institution will approve your loan request. Choose a bank that take as little as 72 hours to complete the process and disburse the loan amount. Remember that there will be a small processing fee, which is usually 1.50% of the loan amount, with 18% GST when the loan is sanctioned.


Financial institutions allow longer repayment tenure for loan against commercial property due to the loan amounts usually being larger. You can also check a loan against property calculator online to know the EMI amount you’ll need to pay each month and choose a suitable tenure accordingly. You can also choose to settle your loan or a part of it before the completion of the chosen tenure. However, check whether the bank charges any prepayment penalty. While pre-payment charges might not be applicable to individuals, an amount of 4% or above could be chargeable from non-individuals, such as partnerships, corporations, or other entities.

The commercial property that helps you generate profits can also help you in your time of need. The mortgaged property can be a piece of land or built-up commercial space. Until you repay the loan amount with the interest, the property remains in the possession of the lender. So, choose your loan amount wisely and make sure you make the repayment on time.

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