When we think about Project Financing we consider various means of finance like FCCB, ECB, NCD, PE, and so on. These means of finance no doubt is very effective and economical, but not every company is blessed with good financial and good track record. In addition to this the current financial crisis has made banks very cautious about financing to new and small corporate. Hence Lease Rent Discounting (LRD) can be considered as one of the best and simplest means of finance for new and needy corporate.
Lease Rental Discounting:
(Loan against Future Rent Receivables /Loan against Rental Income)
Lease rental discounting offers immediate liquidity, against commercial property, to lessors/ property owners who have leased out their properties.
This product is aimed at providing Term Loan to owners of commercial or residential properties who have let them out to reputed companies Commercial, Industrial, Software, Multinational Companies), Banks, Financial- Institutions, Insurance Companies etc. on lease basis thus having fixed rent receivables.
These receivables can be clubbed and discounted at attractive rates. The property owners can then utilize these funds for any purpose including meeting business and personal needs for generating further assets, which can yield higher returns for themselves. Further, the funds could also be deployed for expansion of their business activities. This will give a source to accelerate the rotation of their funds.
These receivables can be clubbed and discounted at attractive rates. The property owners can then utilize these funds for any purpose including meeting business and personal needs for generating further assets, which can yield higher returns for themselves. Further, the funds could also be deployed for expansion of their business activities. This will give a source to accelerate the rotation of their funds.
Information evaluated in the product offering includes:
Lessee details
Lessor details
Property profile including criticality of the premises for the lessee's operations
Deal structure and
Cash flow pattern envisaged in the agreement(s)
The actual discounted amount will be determined after taking into account factors like rent receivables during the unexpired period of tenancy, tax deducted at source and other.
Rate of Interest:
The Rate of Interest on LRD however is very expensive. It varies between 13% to 15%.
FAQ on Lease Rent Discounting:
Q. Who is the loan meant for?
The product is designed to finance the business needs of:
Sole Proprietors / Proprietorship firms
Partnership Firms
Pvt. Ltd. and Public Limited Companies
Professionals – Doctors, Architects, Chartered Accountants, Business Consultants, Business entities in the turnover range INR 90 lakhs to 110 Crores are eligible.
Q. What is the maximum loan amount offered for LRD?
You can avail a maximum loan of INR 22 crores (May vary from Bank to Bank)
Q. What is the maximum tenure of the loan?
The maximum tenure for which you can avail the facility is determined by the lease tenor and is capped at 12 years. (May vary from Bank to Bank)
Q. What do I need to give as security?
Rent receipts are payable by the tenant directly to an escrow account with Bank.
The underlying tenanted property, which may be commercial property or quasi commercial property will be taken as collateral. No plot, self construction or under construction properties will be allowed.
The underlying tenanted property, which may be commercial property or quasi commercial property will be taken as collateral. No plot, self construction or under construction properties will be allowed.
Q. What is the interest rate on the facility?
This may vary between 13% to 15%. (This will vary from Bank to Bank)
Q. What are the basic documents required for applying for the facility?
Bank statements for last 6 months
3 year financials including Profit & Loss (P&L) Statement , Balance sheet and Income Tax returns.
Documents related to establishment of entity, identity and address proof documents.
Property title documents
Please follow the following link to Lease Rent Discounting Template created and published by me on Finance 3.0:
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