Lease Rental Discounting (LRD) has become a preferred financing tool for businesses and property owners seeking immediate capital without divesting assets. By “selling” your future lease receivables to a lender at a small discount, you secure a lump-sum advance while the lender collects tenant rent until the advance is repaid, your ownership remains intact.
Lease Rental Discounting (LRD) lets commercial property owners monetize future rent by receiving a lump-sum loan, while ownership stays intact and tenants’ rents service the debt. Quick 7–14-day approval, funding up to 90 % of discounted cash flows, and rates around 9–12 % make it cheaper and faster than standard business loans or LAP. Ideal for working capital, expansion, or refinancing, LRD requires a solid long-term lease, escrowed rents, and basic KYC.
What Is Lease Rental Discounting?
- Lease: A company (lessee) rents out its business premises (like an office or factory) to another party (lessee) for a fixed period—say, 10 years.
- Rentals: The rent payments that the lessee will receive every month or quarter for the next 10 years.
- Discounting: Converting those future rent-receivables into a lump-sum amount today by “discounting” them at a certain interest rate.
So LRD means the company takes its future rent-incomes and sells that promise to a bank or financial institution in exchange for money now.
Who is Involved an Lease Rental Discounting?
- Property Owner (Lessee) – The business or person who owns the building and has leased it out.
- Tenant (Lessee-in-possesssion) – The company or individual paying rent under a long-term, non-cancellable lease.
- Bank or NBFC (Lender) – The financial institution that advances you money today against those future rents.
The lease agreement must be solid (usually 3–15 years), non-cancellable, and with a creditworthy tenant so the bank feels safe.
Why Do Businesses Use LRD?
- Immediate Funds: Instead of waiting for rents over 10 years, you get a big amount right away.
- Growth: You can invest that money in expanding your business, buying equipment, or paying off other debts.
- No Sale of Property: You continue to own the building; only the future rent-receivables are leveraged.
What Happens to the Rent Cheques?
- Assignment of Lease Rentals: You legally “assign” your tenant to pay rent directly into your home-loan account rather than your personal bank account.
- Collection Mechanism: Usually, tenants provide post-dated cheques, initiate RTGS/NEFT transfers, or authorize an ECS mandate so that rent payments flow straight into the lender’s account.
How Does LRD Works?
- Existing Lease Agreement: You must already have a lease in place—say, ₹1 lakh per month for 10 years.
- Apply to Bank: You approach a bank with your lease deed and the schedule of future rentals.
- Valuation & Credit Appraisal: The bank checks:
- Creditworthiness of your tenant (will they pay rent reliably?).
- Your property’s location and value.
- Discount Rate & Present Value:
- Suppose the bank agrees on a discount rate of 10% per annum.
- They calculate the present value (PV) of all future rents.
- This PV is the lump sum the bank will lend you (minus processing fees).
- Loan Sanction & Disbursement: Bank sanctions, say, ₹60 lakhs (after fees) and transfers it to you.
- Security: The bank takes legal charge on your lease-rent receivables and often on the property mortgage too.
Cash Flows in LRD
| Timepoint | Company (You) | Bank/Finance Co. |
|---|---|---|
| Today | Gets lump-sum money (e.g., ₹60 L) | Pays lump-sum to you |
| Every Month (1–84) | Pays EMI (say ₹1 lakh each month) | Receives EMI |
| Tenant’s Rent (1–120) | Tenant pays ₹1 L to you | Bank collects the rent receivables |
Primary Purpose of Lease Rental Discounting
- Unlock instant working capital against commercial lease receivables.
- Fund business expansion or new project investments without additional collateral.
- Refinance expensive debt by leveraging predictable rental income.
- Smooth out cash‐flow fluctuations during seasonal or market downturns.
- Strengthen the balance sheet by converting long‐term receivables into liquid assets.
- Support operational expenses and inventory financing without equity dilution.
- Enhance financial agility and preserve ownership control.
Lease Rental Discounting Interest Rates 2025
| Banks/ NBFCs | Interest Rates |
|---|---|
| ICICI Bank | Contact the Bank |
| Axis Bank | 9.25% p.a. onwards |
| PNB Housing Finance | 9.00% p.a. onwards |
| Bajaj Housing Finance | 9.00% p.a. onwards |
Eligibility Criteria for Lease Rental Discounting
| Who Can Apply | Age Criteria | Key Terms |
|---|---|---|
| All resident individuals; lessee must be a company as defined under the Companies Act, 1956 | No specific age limit | – Funding against ready commercial property only – Advance up to 85% of NPV of future rentals or 50% of property value (whichever is lower) |
What are the Documents Required for Lease Rental Discounting?
| Category | Documents Required |
|---|---|
| Borrower KYC & Corporate | • PAN card, Aadhaar/Passport/Driver’s License • Certificate of Incorporation & MOA/AOA • Board resolution approving the LRD transaction |
| Income & Financials | • Last 3 years’ Income Tax Returns (ITR) & Form 16 (if salaried) • Last 3 years’ audited financial statements (for corporates/NBFCs) |
| Property Documentation | • Title deed or sale deed • Latest property tax receipts & utility bills • Independent valuation report of the commercial property |
| Lease & Tenant Details | • Registered lease agreement (min. 5-year tenure preferred • 6–12 months’ bank-verified rental receipts • Tenant’s credit rating report or financial statements |
| Escrow & Banking | • Escrow account opening form & mandate • Cancelled cheque of the borrower’s operating account |
Pre-Requisites to Lease Rental Discounting
- Creditworthy Tenants: Only leases with financially strong, well-rated corporate tenants are eligible.
- Longer Tenure: LRD loans typically span 5–10 years, reflecting the larger loan amounts and extended repayment schedules.
- Escrow-Based Repayment: Rental income must flow into a designated escrow account, from which EMIs are automatically deducted.
Lease Rental Discounting Application Process
From initial assessment to final disbursement, LRD follows a clear procedural roadmap:
- Property & Tenant Evaluation
a. Verify the sustainability of rental income
b. Assess tenant creditworthiness (PSUs, MNCs, government bodies, or reputable corporates with ≥5-year leases preferred)
c. Appraise the property’s market value and grade - Documentation Submission
a. 3 years of Income Tax Returns (ITR)
b. Property ownership and registered lease agreements
c. Tenant financials and 6–12 months of bank-verified rental receipts - Approval Timeline
a. Standard processing: 7–15 days from complete documentation
b. Expedited options: as little as 4 days for high-value deals (e.g., >₹5 Crore) - Escrow Account Setup and Disbursement
a. Establish a designated escrow account with the lending bank
b. Lender credits the agreed lump sum to the borrower’s account
c. Tenant rents flow into escrow; EMIs auto-deduct, with surplus remitted to the borrower
Lease Rental Discounting vs. Loan Against Property
| Feature | Lease Rental Discounting (LRD) | Loan Against Property (LAP) |
|---|---|---|
| Collateral | Future lease rentals of a commercial property | The property itself (residential or commercial) |
| Ownership | You retain full title and ownership | You retain ownership, but mortgage is created over the property |
| Repayment Source | Tenant’s rent paid into escrow, auto-deducted to service the loan | Borrower’s personal/business income or rental income |
| Advance Amount | 60–80% of property value or up to 100% of one year’s rent (lower) | Up to 60–70% of the property’s market value |
| Tenure | Generally 5–10 years | Typically 5–15 years |
| Interest Rates | Competitive, backed by contract-based cash flows | Depends on credit profile and property type |
| Use of Funds | Business expansion, working capital, debt refinancing | Any personal or business purpose |
| Risk to Borrower | Tenant default risk mitigated by escrow structure | Borrower bears full repayment risk |
Lease Rental Discounting vs. Business Loan
| Aspect | Lease Rental Discounting (LRD) | Business Loan |
|---|---|---|
| What it is | Advance on your future lease rentals. | General-purpose credit against business cash flows or collateral. |
| Eligible collateral | Commercial property lease receivables (5–15 year term). | Varies by lender: can be property, machinery, inventory, or unsecured. |
| Typical LTV | 80–90% of present value of rental stream. | 50–80% of collateral value (often lower for unsecured). |
| Tenure | Matches lease remaining (5–15 years). | 1–7 years typical; overdraft lines can be shorter. |
| Turnaround time | 7–14 days (once docs ready). | 7–21 days, depending on credit checks and collateral. |
| Documentation | Lease agreement, tenant financials, property title, KYC. | Business & financial statements, collateral papers, KYC. |
| Use of funds | Unrestricted—business growth, debt repayment, personal. | Often unrestricted, though some lenders may impose covenants. |
| Recourse | Typically limited or non-recourse on owner if tenant credit is high. | Full recourse on borrower; may ask for additional guarantees. |
| Impact on balance sheet | Cash asset plus loan liability; improves liquidity ratios. | Similar: adds liability; if unsecured may not add an asset. |
| Prepayment/foreclosure | Generally allowed after 1 year, small charge if early. | Varies—often subject to prepayment penalty or lock-in. |
| Ideal for | Owners of high-quality leased commercial properties who want to unlock value without selling. | Businesses needing working capital, capex funds, or a versatile credit line. |
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Frequently Asked Questions
Any commercial property owner with a long-term lease (usually 5+ years) and a strong tenant—corporates, retailers, or institutions
Rates often range from 9% to 12% per annum, but can vary with market conditions and tenant strength.
Basic KYC, property papers (title deeds, NOC), the lease agreement, tenant’s financials, and bank statements.
Yes. Most banks allow prepayment or part-prepayment, sometimes with a small penalty.
Once all rent cheques flow to the bank (they collect directly), your loan automatically closes. You have no further liability, banks take the risk of tenant payment.
Benchmark: Typically linked to the bank’s MCLR or external benchmarks.
Credit spread: Based on tenant rating and lease tenure.
Negotiation: If you have multiple offers, you can push banks to lower their spread by 25–50 bps.
No strict end-use: you could pay down debt, invest in another property, expand your business, or even fund personal needs. It’s unsecured against your business cash flows, not tied to a project.
Yes, but you’ll need to inform the bank and get their nod—since the loan book is based on the original lease cash flows. Extensions can sometimes improve your borrowing because they lengthen the receivables.
If your rental cash flow is strong and tenant credit high, LRD usually offers lower effective cost and higher LTV versus general-purpose term loans or overdrafts.
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