Lease Rental Discounting
If you have a property which has a long term lease to a blue-chip client and you need cash to finance your business or personal needs, Lease rental discounting (LRD) is the answer to your requirements. LRD (Lease rental discounting) is another way you can raise finances for your business expansion or personal requirements. Maximum care is given in choosing the right Lessor as this kind of an agreement would depend on the rent payment capacity of the Lessor, and hence Lessor profile is also very important.
Lease rental discounting is particularly very suitable to investors in properties and developers and they can leverage on the existing value of their rented properties to raise more Money.
What is a Lease Rental Discounting?
Lease Rental Discounting is kind of a term loan offered against the rental receipts from a long term lease agreements with corporate clients. This kind of discounting is available if you have rented your property to a good corporate client and the repayment of the loan happens directly from the rental deposited in the escrow account maintained with the designated bank. The loan is provided as a percentage of the cumulative value of the rental for the defined term and the value of the property.
Advantages of LRD
- Direct repayment of the loan from the rental receipts, if you are already leveraged but very confident about your business; lease renatl discounting is one such option which can get you finance very quickly. In this case only the rental receipts are evaluated for future debt servicing of the lease rental discounted loan.
- Borrower wouldn't be required to go through the stringent credit appraisal norms and is faster than any other unsecured ot secured loan.
- You can utilize the money raised through lease rental discounting for investments into other properties. If systematically used and prudent norms of leveraging and debt servicing followed, your return on investments can increase significantly.
- Loan through lease rental discounting comes at a much lower rate of interest compared to an un secured loan
Disadvantages of LRD
- Compared to a loan against property where you can exploit the full value of the property to raise a mortgage loan in Lease rental discounting only the leasse rentals determine how much loan can you avail, which is generally lower compared to loan against property.
- You cannot sell the property during the period of the loan unless loan fully paid off.
- Generally the terms and conditions oofered by banks in case of lease rentals discounting are dependent upon credit rating of the lesse.