A Brief Description of Lease Rental Discounting

The leased properties can source you funds! Yes, you read it correctly. The leased properties can, however, give you funds that can be used for either expansion, purchase of assets, or paying off other loans. Such loans can be obtained through a debt product called Lease Rental Discounting (popularly known as LRD). LRD is a type of term loan which is offered against the rental receipts of the property. The property must be leased for 5-10 years and the lessee or tenant should be a well-known brand.

Benefits of Lease Rental Discounting

• LRD serves as a multi-purpose loan and can use the funds for business expansion, financing for the purchase of an asset or new property, or paying off loans.

• The owner of the property does not have to pay to the bank, but in return, the tenant of the property directly pays the bank the loan in the form of rental receipts through an escrow account every month.

• This facility gives a long-term solution to cash flow management as the lease/ repayment is for longer tenures.

• The Rate of Interest in LRD depends upon the value of property, repayment tenure, the credibility of the lessee, etc.

Lease Rental Discounting Eligibility

There are no fixed criteria for eligibility, as it differs from institution to institution. Below is the most preferable one,

• Age criteria: The applicant must be 21 years or above but not more than 60 years in case of a salaried person and 65 years in case of a self-employed person.

• Criteria for Borrower: The borrower must possess a property that is leased to a known brand or corporation. The loan is provided to individuals who are salaried, professionals, or even self-employed.

• Lease Agreement Period: The lease agreement period is a very critical and important factor for taking a lease rental discounting loan from a bank or NBFC. The bank may or may not provide a loan if the lease period is less than 5 years. Rented properties with leases from 5 to 10 years are provided with this loan.

• CIBIL score: LRD provides a loan to a borrower who has a creditworthy CIBIL score. CIBIL score and track record is decisive factor for sanctioning or rejecting major loan applications.

Prerequisites to Lease Rental Discounting

The following pre-requisites should be taken into consideration before applying for LRD.

Corporate Tenants: The tenant for LRD should be financially fit to meet the obligations of the bank, which allows banks to ascertain whether or not future payments are likely to come. The banks only discount lease rentals belonging to renowned corporations or brands with a good credit rating.

Longer repayment period: Secondly, the tenure of LRD is usually between five to seven years or can even go up to 10 years. Banks generally do not make short-term lease rental discounting loans. It is for this reason that the amount of loans and the repayment period is usually large, which is not possible to get paid off within small tenures. Thus, LRD holds larger tenures of repayment.

Repayment Criteria

For the repayment of the loan, an escrow account is created where there is the participation of two or more parties like the borrower, the tenant, and the banker.

The tenant will be asked to transfer their rent in this account and the EMIs will be withdrawn from the same.

How is Loan against Property (LAP) different from Lease Rental Discounting (LRD)?

A Loan against Property is the borrowing of a loan against the whole property as collateral and getting funds against the loan. LAP utilizes the higher amount of loan against the value of your property and can use the same for business purposes.

Whereas, in the Lease Rental Discounting, you get only a certain amount of loan against the lease amount the lessee will pay. The loan is provided against future expected rentals which should have a fixed and regular rental receipt.

Why choose Terkar Capital?

Terkar Capital is one such institution that provides a wide range of products to clients after studying all the aspects of financials, CIBIL score, business plan, industry, sales, etc. We arrange conventional and non-conventional debt and equity funding solutions at a reasonable cost of borrowing. So whenever it is raising funds for corporates, Terkar Capital is ready to serve you at best!

Terkar Capital is the leading investment banking firm in India. We arrange maximum finance for minimum collateral with assistance throughout the process.