What is Lease Rental Discounting?

Lease Rental Discounting (LRD) is a unique financial instrument that empowers commercial property owners in India to leverage the rental earnings from their assets to secure term loans. The loan amount is determined based on the present value of the expected rental income from the property. The borrower can apply for the loan against rental receivables from the lease and offer the property as collateral, making it an attractive option for property owners who require immediate funds.

The process is simple: the property owner provides the lender with monthly rent receipts. Based on the property owner’s long-term cash flow and other factors, the lender sanctions a loan amount. The tenants deposit their rent payments directly with the lender via an Escrow Account.

Key Features of Lease Rental Discounting

• Competitive Interest Rates: Lease Rental Discounting offers high returns, allowing businesses to secure loans at competitive interest rates, making it a cost-effective option.

• Increasing Property Use: Property owners can optimize their assets by leveraging LRD to secure a loan against the property while utilizing the rental cash flow, thereby enhancing liquidity.

• Balanced Cash Flow: The regular rental income, in the form of EMIs, ensures a balanced cash flow for business owners, eliminating concerns about loan repayment.

Benefits of Lease Rental Discounting

• Access to Immediate Funds: One of the primary advantages of LRD is that it provides property owners with quick access to funds. By leveraging the future rental income, property owners can obtain secured loans. This enables them to meet their immediate financial requirements, such as expansion plans, debt consolidation, or working capital needs.

• Competitive Interest Rates: LRD offers competitive interest rates compared to traditional loans, as the rental income acts as a steady source of repayment. The interest rates are usually lower than those offered for personal loans or unsecured business loans. This makes LRD an attractive financing option for property owners looking for cost-effective funding solutions.

• Tax Benefits: Another significant advantage of LRD is the tax benefits it offers to property owners. The interest paid on the LRD loan is eligible for tax deductions under Section 24(b) of the Income Tax Act, 1961. This reduces the overall tax liability of the property owner, making LRD a tax-efficient financing option.

• Unlocking Property Value: LRD allows property owners to unlock the value of their commercial property without selling it. By leveraging the rental income, property owners can access a significant portion of the property's value in the form of a loan. This provides them with the necessary liquidity while retaining ownership of the property and benefiting from its appreciation over time.

Besides these benefits for commercial property owners, LRD also offers several benefits to lenders. For lenders, the steady cash flows from the rental income act as a reliable source of repayment, reducing the chances of default. This makes LRD an attractive proposition for lenders, leading to a higher likelihood of loan approval.

NBFCs are playing a significant role in leading the LRD space with their flexibility, expertise, and customer-centric approach. Godrej Capital also offers Lease Rental Discounting loans on a variety of collaterals including commercial property, industrial property, and warehouses of up to INR 35 crores for a loan tenure of up to 15 years. It offers quick sanction and disbursals, competitive interest rates, a 90% discount on net rentals, and the industry-best Loan to Value (LTV) Ratio of up to 70%. Check out more about the product and its distinctive features here.

Lease Rental Discounting has emerged as an ideal financial solution for commercial property owners in India. By capitalizing on rental income, businesses can access much-needed capital, promoting growth and financial stability. As the demand for commercial property financing continues to grow, Lease Rental Discounting presents a win-win solution for both property owners and lenders alike.

Disclaimer: The contents of this article are for information purposes only and not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.