Applying For a Business Loan
Business loans or commercial loans are designed for a wide variety of small, medium and startup business needs including the purchase, refinance or growth of a business. Business loans are similar to a commercial mortgage in that funds can be borrowed over an extended period of time, usually a maximum of 25 years, and are secured on the property being acquired.
A commercial loan can be secured against most types of freehold or long leasehold buildings, such as factories, shops, bars, residential care homes, guest houses, restaurants, offices, industrial units, apartment blocks and more. A business loan can also be secured against a residential property. The lending criteria is very similar to that of a commercial mortgage except that the general maximum that can be borrowed is 60% of the assessed Market Value. However, a few lenders will advance up to 75% depending upon the proposal and the security offered. Interest rates on the business loan are variable and depend upon the status of the borrower and the length of the term.
These percentages are known as the Loan-to-Value ratio, or LTV. The lower the LTV, the lower the risk is to the lender. The higher the LTV, the more the risk to the lender and it is likely that a higher interest rate would be charged. Lenders won’t usually advance above 75% LTV to try to ensure that there would be sufficient security in the event of a forced sale, often via an auction when it is expected that property will sell at a reduced rate of up to 25% below the usual market value.
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