Lease Rental Discounting (LRD) is a term loan offered against rental receipts derived from lease contracts with corporate tenants. The loan is provided to the lesser based on the discounted value of the rentals and the underlying property value.
It is another method to obtain finance from bank or other financial institute or lending institutes. Lease Rent Discount (LRD) consideration is between the borrower who owns the premises, the tenant who has rented the said premises or taken on lease and the bank or financial institute or Corporate. The rent is considered as fixed income over a stipulated time i.e. Lease or rent period or tenure. The agreement is between the borrower and lender and the major term of repayment is the rent which is directly deposited with the lender and not with the borrower. The Borrower is sanctioned a loan based upon the rent to be collected over the period of lease.
Lease Rental Discounting is a tool to acquire loans from banks using rental receipts as collateral. The bank will examine long-term cashflow and provide the loan based on the exact amount. This loan is then payable by the rents promised. Factors Considered by the Bank or NBFS When Providing Loan To check your eligibility for Lease Rental Discounting, the bank will assess several factors which include:
► Value of your property ► Your capacity to repay ► Other assets you own ► Legality and technical aspects of your property ► Liabilities that might occur
Lease Rental Discounting (LRD) loans work on the premise of rental properties being owed a fixed amount of rent. Tenants enter into a lease with the owner of the property. This agreement mandates a regular payment which is known as rent. The property owner can use rental receipts drawn up for the duration of the lease as collateral while applying for a loan. The process is streamlined as rent is transferred directly to the bank as EMI instead of going to the owner. Each bank has its own criteria as far as the amount of the loan against property is concerned. But, on an average one can get up to 70% of the property valuation in loan amount.
Business Expansion: The property owner can further invest in property using the loan acquired from LRD
Tax Benefits: Tax deductions can be availed by owning more property.
Balanced Cash Outflow: The borrower will benefit from a balanced cash flow as EMIs are taken care of using the rent money owed by tenants. The money acquired in loan provides further revenue through investments.
Low Capital Expenditure: The capital gained from the bank loan greatly helps in reducing personal expenditure when investing in more properties or businesses.
Are You Eligible for Lease Rental Discounting? Salaried individuals, professionals with an established practice, and self-employed individuals qualify for LRD. In case of non-individual entities, any partnership firm, private and public limited enterprises as well as proprietorship firms are eligible. With renting property being the safest bet in the infrastructure investment business, Lease Rental Discounting is effective to expand a growing business. This can be ensured while keeping personal capital investment low. It is a balanced tool for individuals and companies looking to diversify their investments without putting in a large sum of investment.