What are the Pros and Cons of Start up Loan on Property?
One of the challenges faced by novice entrepreneurs is acquiring investments. Although angel investors and venture capitalists might be willing to invest, their demands can be difficult to meet. Therefore, it is ideal to go for start up loan on property, where you can enjoy your autonomy while also availing necessary funding.
Like anything, there are pros and cons to availing a loan for start-ups:-
Pros:
- Easier to avail: A property loan is much easier to avail than finding an interested investor. Some lending financial institutions approve of loans within 72 hours of meeting all criteria.
- Higher loan amount: The principal amount which you can avail from a loan against property is substantially high, leading lenders offer loan amounts of up to Rs. 3.5 Crore.
- More freedom: Investors usually have a lot of stipulations when they invest in a start-up. They demand for massive ROIs within a short period of time. Other than that they also ask for liquid equity which impedes your freedom. Loan against property for start-ups don’t have such stringent stipulations and thereby lets you exercise your freedom.
Cons:
- Low LTV: LTV or Loan-to-value ratio is a certain percentage of the mortgaged property’s value granted as the loan or advance. In case of start-ups, this loan-to-value ratio is comparatively lower because of their yet-to-build market rep and capital strength.
- Expensive prepayment charges: Some financial institutions charge foreclosure fees when providing loan against property. This cost of loan ranges from 1% to 4% of the principal amount. It increases the overall cost of taking a loan against property for start-ups.
Even though there is no right way of going about when seeking investment for start-ups, it is necessary to weigh your options with your priorities to avail the most suitable funding.
