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SBI Lease Rental Discounting

SBI Lease Rental Discounting

SBI Lease Rental Discounting

State Bank of India (SBI) is one of the largest banks among the public sector banks offers a lease rental discounting (LRD) term loan scheme provided for the property owner against the rental receipts obtained from the lease contracts with corporate tenants. The bank will examine long-term cash-flow and provide the loan based on the rental amount. In this article, we look at the SBI lease rental discounting in detail.

Lease Rental Discounting (LRD)

Lease Rental Discounting (LRD) loans operate on the premise of rental properties being owed at a specific amount of rent. The tenants can enter into a lease with the owner of the property. The property owner can make use of rental receipts drawn up for the term of the lease as collateral security while applying for a loan.

Advantages of obtaining LRD

The advantages of obtaining lease rental discounting loan are explained below:

Business Expansion: The property owner can invest further in property using the loan obtained from the LRD.
Tax Benefits: Tax deductions can be utilised by holding more properties.
Balanced Cash Outflow: The borrower will get benefit from balanced cash flow through utilising the rent money remitted by the tenants. The money obtained in loan further grants revenue through the investments.
Low Capital Expenditure: The capital acquired from the bank loan helps in reducing personal expenditure when investing in more properties or businesses.

Eligibility Criteria

The eligibility criteria for availing loans from the SBI are as follows.

All owners of residential buildings and commercial properties which are to be rented or already rented to the following entities are mentioned below.

    • MNCs
    • Banks
    • Large and Medium size corporates
    • Government offices both Central and State Government
    • Public bodies such as Municipal Corporations etc.

Note: It is not applicable for the properties have been leased to social infrastructure project such as colleges, schools, orphanages, hospitals, old age homes, nursing homes etc.

Target Group

All MSME Units along with the individuals who are owners of residential and commercial properties let out on rent.

Quantum of Loan

The minimum and the maximum loan amount provided under lease rental discounting is specified here.
Minimum Loan: The minimum amount of above Rs. 10 Lakhs can be obtained.
Maximum Loan: The maximum loan amount of up to Rs. 50 crores for National banking group and Rs. 500 crores for Mortgage Guarantee company can be obtained.

Scale of Finance

The scale of finance for the lease rental discounting characterised are as follows:

Up to Rs. 10 Lakhs: The scale of finance will be 95% of total Present Value (NPV) of total rent receivables as per year Marginal Cost of Funds based Lending Rate (MCLR) or 70% of the realisable value of the property mortgaged.

Up to Rs. 50 Crore: The scale of finance will be 70% of total rent receivable for the residual lease term including the period covered under one renewal or loan tenor, whichever is less.

Above Rs. 50 Crore: The scale of finance will be 75% of total rent receivable for the residual lease term including period covered under renewal or loan tenor, whichever is less.

Pricing Details

Competitive Interest Rate Linked to MCLR (Marginal Cost of Funds based Lending Rate).

Collateral Security

The equitable mortgage (EM) on the property against the rentals of which the loan has to be sanctioned or any other property of similar value has to be produced as the collateral security.
Also, the realisable value of the property to be mortgaged should be at least 143% of the loan amount.

Repayment of Loan

The repayment of the loan should be through EMI. An escrow account should be opened with our Bank for credit of rentals against which the loan is sanctioned.

Processing Fee

The processing fee or upfront fee will be fixed as per the extant instruction. Normally, the bank will charge around 1% of the loan value but exact details will be provided at the time of availing loans.

Terms and Conditions

The Loan should be disbursed only after the following conditions are satisfied :

  • Noting of EM is compulsory in states where that provision exists. The creation of EM is not possible wherein such case registered mortgage should be done.
  • The execution and registration of Lease Deed.
  • Standing instructions should have to be set up in CBS for transfer of the EMI from the Escrow Account to the Term Loan account.

Documents Required

The following are the documents which are necessarily required for processing your loan.

  • Address Proof of the Individual/Partners/Directors: Electricity Bill or Receipt of Maintenance Charges or Valid Passport or Purchase/Lease Deed/Leave and License Agreement of Residence or Office.
  • Identity Proof: PAN Card, Voter’s Card, any photo identification issued by Government.
  • Business Proof: MIDC Agreement or Warehouse Receipts or certificate of Shop and Establishment Act or document copy of the Lease Agreement.
  • Business Profile on Company’s Letterhead
  •  In case of partnership firms, Partnership deed
  •  Incorporation certificate, Date of Commencement of Business, Memorandum of Title Deeds, Form 32 also or deletion of directors in case of companies
  • Last 3 years’ Trading and Balance Sheets (duly signed by a Chartered Accountant)
  • Last 1 years’ Bank statement of the Firm
  • If existing loans are shown into the balance sheet, then the sanctioning letter, repayment schedule and track record of the same
  • Firm/Company’s PAN Cards 
  • Individual income tax Returns of the Individual/Partners/Directors for the last 3 years
  • Last 1 years’ Bank statement of Individuals, Partners, and Directors
  • Share Holding pattern of Directors duly certified by a Chartered Accountant
  • List of the Existing Directors of the company from the Registrar of the Companies
  • Registered rent agreement copy with the borrower who owns the premises and tenant who has rented the said premises

Application Procedure for SBI Lease Rental Discounting

The eligible applicant who wants to apply for the Lease Rental Discounting loan has to approach the nearest SBI branch and collect the application form from the bank. Complete the application with the mandatory details and attach the required documents. After filling the form, submit the same to the appropriate bank.