Lease Rental Discounting is a Mortgage Loan product wherein Banks will provide you a loan facility purely based on your rental receivables on your property. This is a hot product with many Banks & N.B.F.C’s quite comfortable to lend you the loan.
How does Lease Rental Discounting Work?
- You need to own a Property (Preferably an A Khatam property) with monthly rent receivables.
- Ideally, you need to have a good tenant with longer lease periods. Approval chances are high when you have top rated tenants with longer lease periods. Commercial tenants are classified as A-Class, B Class & C Class. Big brands/MNC’s like Banks, IT Majors, and companies like Pizza Hut are all considered A-Class tenants. Few Co-operative banks, local hotel chains will come under the B Category. Any other local /small businesses will fall under C Category
- Rentals should be credited to your bank account every month. Cash rentals will not be considered. Along with this, you need to have proper rental agreements signed in place. For A Class tenants, you should have the rental agreement registered.
- Banks will carry out the normal due diligence just like any other Mortgage (Loan against Property) Loan. This involves credit checks, Physical verification, Legal assessment, Property Valuation, etc..
- After approval & disbursement (Sometimes before disbursement), Banks will open an escrow account wherein all future rentals will have to be credited to this account. You will be allowed to withdraw the balance amount in the escrow account after monthly E.M.I’s have been deducted.
- Before sanction, you will have to get a N.O.C from the tenant mentioning that they have no objection in transferring the future rentals to the new Escrow account.
- Banks usually take 1-4 advance E.M.I’s from the disbursement amount to ensure that there is no E.M.I payment risk at any point during the entire loan tenure.
What are the E.M.I Risks in an L.R.D product?
- a) Opening an Escrow account takes time. This means that there could be a potential E.M.I payment Risk. Advance E.M.I will ensure that this Risk is mitigated & Customer credit rating is taken care of.
- b) Sometimes a tenant might choose to vacate the premises which means that it will take some time for the new tenant to come in. Advance E.M.I will ensure that this gap is taken care of.
- c) Banks will insist on Advanced E.M.I’s whenever they foresee a repayment Risk due to the existing Credit behavior of the customer.
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