Loan Against Property vs Business Loan: Which Is Better?

Starting a business and running it is no easy task. If you have ever tried to start and establish something of your own, you would know that setting up and running a business requires time, energy, and most importantly, money. Even those of us who have great ideas and staunch determination to make that business idea work find the paucity of money to be a major hurdle. Thankfully, financial institutions have devised tools to help businessmen realize their dreams.

One such tool is a business loan, which has gained immense popularity among the business class. However, is a business loan the best option you have? What about a loan against property? Between a loan against property and business loans, which is better?

The answer is a loan against property. Unfortunately, most business owners are unaware of the features and benefits of this loan type. In this page, we tell you why a loan against property is a better option than a business loan. However, before we can do that, let us first understand the difference between the two. 

What Is a Loan Against Property?

A loan against property is a secured loan in which a borrower pledges their property as security. These loans are released against both residential and commercial properties. Since LAP loans are secured loans, banks and NBFCs sanction them at a lower interest rate than that charged on unsecured loans, such as a personal loan or business loan. Further, the funds released under a LAP loan can be used to meet all kinds of expenses. 

What Is a Business Loan?

A business loan is an unsecured loan that allows borrowers to avail of funds without pledging any collateral. The funds availed of must be used for expanding operations, buying tools and machinery, or boosting working capital, among other business-related needs. While a business loan may help you achieve new heights in your business, it is not the best financial tool to meet your financial requirements. 

Loan Against Property vs Business Loan: What Is the Difference Between the Two?

If you wish to understand whether a loan against property is the better option for you compared to a business loan, read on to discover the difference between the two. 

  • Business loans are unsecured loans as they are released without any collateral in possession. Thus, business loans carry with them a risk factor for the lender. 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 much lower interest rate than a business loan.
  • Yet again, 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 is a secured loan and therefore, one can avail of even hefty funds against high-value collaterals. In general, most lenders agree to release a loan amount equivalent to 75% of a property's value.
  • The tenor for a business loan is much shorter than that for a loan against property. One can pay off a LAP over 15 to 20 years. However, business loans must generally be paid off within 7 years from the date of disbursal.
  • The loan amount released under LAP can be used to meet all kinds of expenses. One can use this money to fund their child's education, finance their wedding, expand the business, pay for medical emergencies, etc. The loan amount released under business loans, on the other hand, can only be used to pay for business-related expenses. 

Final Thoughts

If you need money to start a business or expand an existing one, know that a business loan is not your only option. In fact, if you need a huge amount for a longer period, opting for a loan against property would be a far better choice than availing of a business loan at a high interest rate. Avail of a loan against property with us and get the amount credited with 72 hours* from document submission.