Legal & Technical Aspects in Loan Approval Process

The application and sanction of loan is not one-step process. It involves multiple steps and validation. If the track records and other validation are clear then it’s a simple process, if not then it’s going to be a lengthy and a tedious one.

To evaluate the borrower credit worthiness, most financial institution uses various wide range of risk assessment tools which varies across lenders. In our previous blog we had seen the various parameters and filters that a lender access for sanctioning a loan. In this blog we shall discuss a little detail on the importance of legal & technical aspects in the loan approval process.             

The valuation and validation of properties from legal and technical aspect is an important part of the checks and inspection done during the loan process by every lender. This is an important part of the process that covers verification of documentation and all legal aspects. This is done once the credit appraisal process is over. A considerable amount of the loan depends on the legal and technical valuation of the property done by the financial institution through the legal authorities.

Legal aspects:

  • For the lenders to process your loan application, your property should be free from legal disputes and the properties should have a clear ownership document.
  • Once clear, lender sends a team of experts to examine and evaluate the respective property documents, such as the no-objection certificates (NOCs), title deeds, and other ownership papers for legal loan verification.
  • A group of certified lawyers usually undertakes the inspection process and a charge report is submitted by the lawyers directly to the bank.
  • Then the technical officer scrutinizes all the documents submitted. Approvals and clearances from competent authorities are verified minutely.

Technical Aspects:

  • In the technical assessment, it is very important to estimate the current market value of the property.
  • The lender sends a team of technical experts to evaluate the property’s physical health, building specifications, and market value. 
  • The lender evaluates the following aspects like the level of construction, maintenance, the built up and super built-up area, age of property, level of construction and quality of construction require legal clearances and also the local surroundings to move ahead apart from the market value of the property.
  • The valuer then submits the report to the bank and then technical appraiser scrutinizes the documents submitted.
  • There is a fixed percentage that every lender funds depending on the market value of the property.

Conclusion:

To conclude, an entire due diligence process is exercised before the disbursement of loan. The technical officer verifies all the original documents, title certificates, clearance certificates, guarantees, security documents, income certificate, address proof, the reports of legal and technical evaluation, etc… Based on evaluation the appraiser prepares the report and submits to bank. The report of the technical appraisal determines whether the loan can be given for the prospective property.

The solitary motive behind these legal verification and technical verification, is to fortify that the property is free from any kind of encumbrances and has a clear title, technically sound and meets the valuation benchmarks of the lender.

In the next blog, we shall see the different types of business loans facilities available in India.

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