Investing in commercial real estate can be a powerful wealth-builder—but financing these properties is unlike home loans. With higher values, longer tenures, and tax advantages, you’ll need tailored commercial property loans India and savvy knowledge about financing commercial real estate. This guide explores the five best financing routes, real-life cases, and clear tips for Indian investors.
1. Traditional Bank Loans
What They Offer
- Most banks (SBI, ICICI, HDFC, Axis, Kotak, PNB Housing, Bajaj Finserv, LIC HFL) provide commercial property loans at 8.5–12% interest, with tenures up to 20 years and financing up to ₹50 crore or more.
- Loans can be used for purchases, construction, renovation, or fit-outs .
Pros
- Lower interest rates and better terms for established borrowers.
- Can finance up to 75–80% of property cost.
- Tenures stretch up to 20 years, easing EMI burdens.
Cons
- Strict eligibility: income proofs, business stability, and credit score.
- Collateral required, with detailed property scrutiny.
- Processing fees (~1–2%) and rigid documentation.
2. NBFC / HFC Loans
Non-bank financiers like PNB Housing, Bajaj Finserv, Aditya Birla, and Hero FinCorp offer alternative financing.
Advantages
- Quicker approvals and flexible terms.
- More lenient credit norms—great for new MSMEs or startups.
Drawbacks
- Higher interest (10–18%), shorter tenures (up to 15 years).
- Processing fees can be higher.
3. Asset-Backed and SME Loans
Example: SBI’s CRE Asset-Backed Loan
- Secured via land or business assets.
- Interest starts ~7.5% p.a.
Best For
- Entrepreneurs with existing assets seeking cheaper loan options.
- Great for refurbishing warehouses, shops, offices, or hotels.
4. Lease Financing & Sale-Leaseback
Lease Financing
- Businesses can lease premises instead of buying—useful for conserving capital .
Sale-Leaseback
- You sell your asset to an investor/REIT and continue occupying it under lease.
- Unlocks capital while retaining operational use.
5. Private Equity, REITs, & Crowdfunding
Private Equity
- Firms invest directly in large commercial projects in exchange for equity share.
REITs
- Invest in structured property portfolios and earn income without owning assets.
- REITs like Embassy Office Parks offer dividend-style returns.
Crowdfunding
- Multiple investors pool capital for a commercial project.
- Access starts at just ₹10 lakh, ideal for small investors.
How to Choose Right for You
| Financing Route | Interest Rate | Tenure | Size | Best Use Case |
| Bank Loan | 8.5–11.5% | 15–20 yrs | ₹50 cr+ | Established SMEs, large office/shop purchases |
| NBFC / HFC Loan | 9.5–18% | 10–15 yrs | ₹20 cr | Startups, flexible sourcing |
| Asset-Backed Loan (SBI) | ~7.5% | ≤15 yrs | ₹50 cr | Property + business collateral deals |
| Lease / Sale-Leaseback | Contract rate | Flexible | Varied | Businesses freeing up capital |
| Private Equity / REITs / Crowdfund | Depends | Varies | ₹1 cr+ | Investors seeking passive income |
Real-Life Cases
- A Gurgaon SME used an SBI asset-backed loan at 7.5% to expand their warehouse without additional equity.
- A Bengaluru startup took a Bajaj Finserv loan at 13% to buy office space for ₹5 crore—fast approval, flexible collateral.
- Mumbai investor opted for Embassy REIT shares instead of direct property purchase—gaining dividends and exposure without owning physical space.
Smart Tips to Navigate Financing
- Score your property: Lenders check location, occupancy, title; prepare documents early.
- Check credit health: Bank loans require strong CIBIL scores (>750).
- Negotiate interest & charges: Margins can shift based on LTV and profile.
- Plan tax benefits: Interest and depreciation are deductible for commercial properties.
- Match tenure to property use: Longer for stable assets like warehouses, shorter for offices or turn-key businesses.
- Combine financing tools: Use bank loans for purchase + NBFC loan for fit-out + REIT for rental returns.
Regulatory Update: Good News for CRE Borrowers 📈
- RBI has relaxed provisioning norms: only 1.25% now needed for under-construction commercial real estate loans (effective Oct 1, 2025), making banks more comfortable with CRE lending.
- This means easier approvals and possibly better interest rates down the line.
Final Thoughts
For investors targeting commercial property, a well-chosen commercial property loan can unlock solid gains from rental income and capital appreciation. Here’s a quick recap:
- Bank loans: Best all-round financing with lower rates and lengthy tenures.
- NBFC/HFC: Quicker, more flexible but costlier.
- Asset-backed: Ideal for business owners with collateral.
- Lease and sale-leaseback: Good for capital-light models or turning assets into cash.
- Private equity, REITs, crowdfunding: Alternative paths if you want income exposure without physical ownership.
With the right mix—banks for core funding, NBFCs for flexibility, and strategic tools like leases or REITs—you can finance your commercial investments smartly and securely. These financing strategies position you well to capitalize on India’s growing industrial, office, and retail segments.
Source : fulinspace.com