If you are a business owner, you may need a regular source of funds to meet your working capital requirements, manage your cash flow, or seize new opportunities. However, getting a conventional business loan can be a tedious and time-consuming process, as it involves a lot of documentation, verification, and approval. Moreover, you may not need a lump sum amount at once, but rather a flexible credit facility that you can use as per your needs.

That’s why you may want to opt for an OD limit against property, which is a form of credit facility that has characteristics of both a secured loan and an overdraft. This means that you can borrow money up to a sanctioned overdraft limit, usually based on the value of your property, and pay interest only on the amount actually used.

In this article, we will explore what is an OD limit against property, how it works, what are its benefits and drawbacks, and how to get one.

What is an OD limit against property?

An OD limit against property, also known as a loan against property overdraft, is a type of secured loan that allows you to pledge your property as collateral and get a credit limit in return. You can use this credit limit as per your convenience and requirement, and repay it in flexible installments. You only have to pay interest on the amount utilized, and not on the entire limit.

An OD limit against property can be either evergreen or dropline, depending on the lender and the loan product. An evergreen OD limit against property is a fixed credit limit that does not reduce over time, unless you repay the principal amount. A dropline OD limit against property is a reducing credit limit that drops every month as per a predetermined schedule, until it reaches zero at the end of the loan term.

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How does an OD limit against property work?

An OD limit against property works in the following way:

  • You apply for an OD limit against property with a lender, by submitting your personal and business details, along with the documents related to your property, such as the title deed, valuation report, tax receipts, etc.
  • The lender evaluates your eligibility and creditworthiness, and offers you a credit limit based on the market value of your property, your income, your repayment capacity, and other factors. The credit limit can range from 50% to 90% of the value of your property, depending on the lender and the loan product.
  • You accept the offer and pay the processing fee, and the lender disburses the credit limit to your account. You can access the credit limit through a cheque book, a debit card, or online banking.
  • You can use the credit limit as per your needs and preferences, and repay it in flexible installments. You only have to pay interest on the amount utilized, and not on the entire limit. The interest rate can vary from 10% to 18%, depending on the lender and the loan product.
  • You can also repay the principal amount as per your convenience, and reduce your interest liability. However, you may have to pay a prepayment penalty, depending on the lender and the loan product. You can also withdraw the repaid amount again, as long as it is within the credit limit and the loan term.

What are the benefits of an OD limit against property?

An OD limit against property has several benefits over a conventional business loan, such as:

  • Flexibility: An OD limit against property gives you the flexibility to use the funds as per your needs and preferences, without any restriction or limitation. You can use the funds for any business purpose, such as working capital, expansion, equipment, inventory, marketing, or research and development. You can also choose the amount, frequency, and duration of your withdrawals and repayments, as long as they are within the credit limit and the loan term.
  • Cost-effectiveness: An OD limit against property is more cost-effective than a conventional business loan, as you only have to pay interest on the amount utilized, and not on the entire limit. This can help you save money and reduce your debt burden. Moreover, you can also repay the principal amount as per your convenience, and reduce your interest liability. You can also withdraw the repaid amount again, and enjoy the benefit of revolving credit.
  • Accessibility: An OD limit against property is more accessible than a conventional business loan, as it has less stringent requirements and criteria. You don’t have to provide any income proof, business plan, or financial statements, as the lender relies on the value of your property as the security. You can also get an OD limit against property even if you have a low credit score, a limited business history, or a seasonal or irregular income, as long as you have a property to pledge as collateral.

What are the drawbacks of an OD limit against property?

An OD limit against property is not without its drawbacks, however. Some of the potential disadvantages are:

  • Risk: An OD limit against property is a secured loan, which means you have to pledge your property as collateral. If you fail to repay the loan on time and in full, you may lose your property to the lender. The lender can seize and sell your property to recover the loan amount, and you may end up losing your home or business premises. You may also damage your credit score and reputation, and face legal action from the lender.
  • Limitation: An OD limit against property is a pre-approved loan facility, which means you can only get a credit limit that the lender offers you, based on the market value of your property. You may not be able to get a higher credit limit, even if you have a higher income, a better credit score, or a more valuable property. You may also not be able to switch to another lender or loan product, even if you find a better deal or offer elsewhere.
  • Cost: An OD limit against property may have higher interest rates and fees than a conventional business loan, as the lender may charge a premium for the flexibility and convenience of the loan. The interest rate can vary from 10% to 18%, depending on the lender and the loan product. You may also have to pay origination fees, processing fees, late fees, prepayment penalties, and other charges, which can add up to the total cost of the loan.

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How to get an OD limit against property?

If you want to get an OD limit against property, here are some steps you can follow:

  • Check your eligibility: Before you apply for an OD limit against property, you should check your eligibility and creditworthiness, and see if you qualify for the loan. You should have a property that you own or co-own, and that is free from any legal or financial disputes. You should also have a regular and stable income, and a good credit score.
  • Compare your options: You should shop around and compare different lenders and loan products, and find the one that best suits your needs and goals. You should consider the credit limit, interest rate, fees, and other features of each loan, and use online tools and calculators to estimate your monthly payments and total cost. You should also read the customer reviews and testimonials of each lender, and look for any complaints or red flags.
  • Apply for the loan: Once you have chosen a lender and a loan, you can apply for the loan online, by submitting your personal and business details, along with the documents related to your property, such as the title deed, valuation report, tax receipts, etc. The lender will evaluate your eligibility and creditworthiness, and offer you a credit limit based on the market value of your property, your income, your repayment capacity, and other factors. You can then accept the offer and pay the processing fee, and the lender will disburse the credit limit to your account. You can access the credit limit through a cheque book, a debit card, or online banking.

Conclusion

An OD limit against property is a flexible and convenient credit facility that allows you to leverage the value of your property to meet your business needs. However, you should also be careful and responsible, and make sure you can repay the loan on time and in full. By following the steps and tips mentioned above, you can find the best OD limit against property for your needs and goals, and grow your business in any situation.