Several banks now offer loans against rent receivables to owners of residential or commercial property which is rented or leased out to reputed organisations such as public sector undertakings, central or state government undertakings, banks, financial institutions, insurance companies and multinational companies. The existence of a firm lease agreement between the borrower and the tenant and sound creditworthiness are important pre-requisites to avail the loan.

Before sanctioning the loan, a tripartite agreement between the bank, the borrower and the tenant and another term-loan agreement between the borrower and the bank need to be signed. Depending on the agreement, the tenants may deposit the rent directly in the bank or the borrower may repay the loan in equated monthly instalments to the bank.

The quantum of loan varies from bank to bank, starting from a minimum of Rs 50,000 offered by State Bank of India. The maximum loan amount depends on the amount of rent receivable and the value of security offered as collateral.

The repayment period of the loan depends on the tenure of the loan agreement with the tenant. It is generally either a fixed term or residual lease period, whichever is earlier.

The interest rate on the loan depends on the bank.Most banks also charge a processing fee of 0.5-1 per cent on the loan. There can be an additional charge for prepayment of the loan ranging around 1 per cent of the prepaid amount.

Banks require security for taking the loan, generally in the form of equitable mortgage of the immovable property by submission of the legal deeds of the property and assignment of the lease rentals.