Sufficient cash flow is crucial for stability and growth in business. Lengthy sales cycles and repressed cash reserves can pose financial challenges. The LRD, “Lease Rental Discounting”, in India is a beneficial option for commercial property owners. Let us explore how it functions and benefits small businesses in funding their ventures.

What is Lease Rental Discounting (LRD)?

Lease Rental Discounting (LRD) is a distinctive financial instrument that empowers proprietors of commercial properties to harness the rental earnings from their assets to secure term loans.

LRD is simple. The commercial property owner provides the lender with monthly rent receipts as collateral. The lender sanctions a loan amount based on the property owner’s long-term cash flow. The lender then “purchases” the future rent receivables from the borrower and grants a loan while accounting for the time value of money. Consequently, tenants deposit their rent payments directly with the lender.

The lease rental discounting formula used by all lease companies and dealers is as follows:

Finance Fee = Money Factor multiplied by a total of Net Cap Cost and Residual

The lease rental discounting meaning gets better explained with a Lease Rental Discounting Example: Rs. 100 available today is worth more than the same amount in the future due to its probable purchasing ability.

Main Features of Lease Rental Discounting

Competitive Interest Rates

LRD offers high returns. Hence, businesses can secure loans at competitive interest rates, making LRD a cost-effective option.

Tri-Party Agreement

LRD operates through a tri-party agreement. The tenant typically enters into a rental agreement with the lender and makes rental payments directly as EMIs for loan repayment.

Increasing Property Use

Property owners can optimise their assets through LRD by securing a loan against the property while leveraging the rental cash flow, enhancing liquidity.

Ensuring Balanced Cash Flow

The regular rental income, in the form of EMIs, ensures a balanced cash flow for the business owners, eliminating concerns about loan repayment.

The Versatile Purposes of Lease Rental Discounting

Acquiring New Property

Entrepreneurs can acquire new properties by diversifying their rental business portfolio by leveraging rental income from existing properties.

Loan Repayment

LRD allows borrowers to refinance or repay existing debts with longer repayment tenures and attractive interest rates.

Conclusion: The Basics of Lease Rental Discounting Explained

Lease Rental Discounting is an ideal financial solution for commercial property owners in India. Businesses can access much-needed capital, promoting growth and financial stability, by capitalising on rental income. Understanding the functioning and features of lease rental discounting loans authorises entrepreneurs to make informed decisions.

FAQs

Q: What is the margin for lease rental discounting?

A: The LRD loan full form is a Lease Rental Discounting loan. Up to 50 crores, a loan can be availed for 70% of the achievable property value mortgaged.

Q: Can businesses use LRD to improve cash flow?

A: The regular rental income from tenants repays the loan through EMIs, eliminating cash flow from the borrowers.

What is Lease Rental Discounting? Here’s An Ideal Financing Solution for Commercial Property Owners

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