Lease Rental Discounting (LRD) is a modern financing solution that allows property owners to unlock the value of their rental income by availing loans against leased commercial or residential properties. It is particularly useful for those who own properties leased out to reputable tenants and are looking for funds for business expansion, working capital needs, or even personal requirements. In simple terms, LRD helps you get a loan by pledging the future rental income of your property as collateral.
At its core, LRD is based on the present value of future rental cash flows. Financial institutions evaluate the long-term rental agreement signed with a tenant and offer a loan against the rental income expected during the lease period. The tenant should ideally be a credible corporate or government entity, as this reduces the risk for the lender and ensures timely repayment of the EMIs through direct rental deposits.
This financing tool is ideal for commercial property owners, especially in metro cities where rental income is steady and predictable. Banks and NBFCs (Non-Banking Financial Companies) typically fund up to 70–90% of the property’s rental income value, depending on the profile of the borrower, quality of tenant, lease duration, and property location.
One of the major advantages of Lease Rental Discounting is that the property owner continues to retain ownership of the property and also earns rental income. The EMI is often structured in a way that it gets serviced through the monthly rent received from the tenant, offering a seamless and stress-free repayment mechanism.
The loan tenure for LRD usually ranges from 7 to 15 years and offers flexible repayment options. Interest rates for such loans are generally lower than unsecured business loans since the rental income and property itself act as security.
