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Lease Rental Discounting (LRD)

Lease Rental Discounting (LRD) is one of the loan schemes offered by banks under which an applicant obtains loan against his/her leased property. Under LRD, the borrower pledges the future rental earnings from the leased property to the bank for loan repayment. The agreement is between the borrower and lender and the major term of repayment is the rent is directly deposited with the lender and not with the borrower. LRD is typically offered against commercial properties.

LRD is particularly beneficial for the builders/developers who make a huge investment in raising a commercial property for rent/lease purposes.The investments of the builders are in a way locked as the returns are obtained only in the form of rentals. Thus, they opt for LRD from banks by pledging their future rentals from the property. Banks also ensure that the future rental earnings from the property are secured before offering LRD.

The various factors that a bank keeps in mind while offering LRD are:

  • Profile of the lessee.
  • Credit worthiness of the lessee in terms of rent paying capacity.
  • Location of the property with regards to factors such as growth prospects, presence of other industries, civic amenities, etc.
  • One of the most important points that a bank keeps in mind is that in no way it should be facilitating the conversion of black money into white through LRD.
Checklist

The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting the Lease Rent Discount Loan Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.

  • Address Proof: Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.
  • Identity Proof: Valid Passport, PAN Card, Voter's Card, Any other photo identification issued by Government Agencies.
  • Business Proof: VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt.
  • Business Profile on Company's Letterhead.
  • Partnership deed in case of partnership firms.
  • Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.
  • Last three years' Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable).
  • Last one year's Bank statement of the Firm.
  • If existing loan, then sanctioning letter and repayment schedule of the same.
  • Firm/Company's PAN Cards.
  • Individual Income Tax Returns of the Individual/Partners/Directors for last three years.
  • Last one year's Bank statement of Individuals, Partners, Directors.
  • SEBI formalities in case of listed companies.
  • Share Holding pattern of Directors duly certified by a Chartered Accountant.
  • List of the Existing Directors of the company from the Registrar of the Companies.
  • Written & approved confirmation of having No Legal Suit filed against any of the directors. If any such legal suit or proceedings are pending then the details of such legal suit or proceeding.
Process
  • Personal interview /discussions is held with the customers by the bank’s officials.
  • Bank's Field Investigation team visits the business place/work place of the applicant.(All the documents submitted are verified by the bank with the originals so as to ensure the authenticity of the same.)
  • Bank verifies the track record of the applicant with the common information sharing bureau (CIBIL).
  • In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on various parameters and also the existing market conditions.
  • Depending on the size of the project the file is put up for sanction to the appropriate level of authority.
Sanctions & Disbursement
  • On approval/sanction, the sanction letter, is issued specifying the terms and conditions for the disbursement of the loan. The acceptance to the terms of sanction is taken From the Applicant.
  • The processing charges as specified by the bank have to be paid to proceed further with the disbursement procedure.
  • The documentation procedure takes place viz.Legal opinion of various property documents and also the valuation reports.(Original Documents to title of the immovable assets are to be submitted)
  • All the necessary documents as specified by the legal dept., according to the terms of sanction of the loan of the bank are executed.
  • Disbursement of the loan takes place after the Legal Dept. Certifies the Correctness of execution documents.