How a LRD loan can be key to sorting your business problems?

India’s 61,500 startups and 83 Unicorns have changed the way Indians do business. Everybody wants to sell an idea, take a modern approach to a traditional business model or revamp an existing function of their company.

You may be a startup owner yourself or you may be seeking funding to kick off a new venture – and a LRD loan could be what you are looking for. You may also be a seasoned businessman, who is looking for extra funds to boost your company portfolio, or even diversify into a new market – and again, your road to extra capital could end at a LRD loan. A LRD loan is as crucial as the certainty of future cash flow.

Let’s first understand what LRD or Lease Rental Discounting is: LRD is one easy way to leverage your self-owned commercial property to finance any current financial needs such as working capital, repayment of debt, repayment of an unsecured loan, acquiring a fixed asset for business, launching a new venture, or any kind of emergency financial requirement you may have.

LRD loans are also referred to as a “Term Loan”, which can help you with cash when you avail a loan facility at attractive interest rates against these lease rentals. “Lease rentals” or simply put, commercial property rent received from the tenant of said property on a monthly basis is used as collateral, while applying for this kind of loan. The bank you are seeking LRD from will most definitely examine long-term cash flow and provide the LRD-centered loan based on the exact amount. This loan is then payable by the rents promised.

Here are the key highlights of such a Term Loan:
 

• The tenant or the lessee has to make the payment monthly for the lease period
• Lease Rental Discounting helps you make the most out of these rental cash flows to generate further assets, which can yield higher returns
• Funds received can easily be deployed for various requirements
• Banks ensure that corporate tenants are financially able to meet the expectations of the bank by analyzing the credibility of the tenants as well
• Banks choose to discount lease rentals to established relationship with corporations with good credit rating, timely rental credits, and long-term partnership.

Understanding the eligibility:
 

The eligibility for a LRD loan is calculated on the basis of:

• The discounted rental cash flows of the property
• Current market value

LRD loan tenure:
 

To make sure that the agreement is binding and withheld, a Tripartite Agreement between the Lessor, Lessee and the bank has to be executed. Within a Lease Rental Discount, the loan tenure depends on:

• Tenure left in rental agreement
• Repayment through an escrow account (in usual circumstances)

An LRD loan is one of the many ways to seek a loan against a property that you own. Beyond Business Loans, some of the other types of LAP or Loan Against Property you can avail on your entrepreneurial journey are mortgage loans, including registered loans and equitable loans.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.