Obtaining 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 money can be borrowed over an extended period of time, usually a maximum of 25 years, and are secured on the property being bought.
A commercial loan can be secured against many types of freehold or long leasehold buildings, such as factories, shops, bars, care homes, hotels, restaurants, offices, industrial units, blocks of flats and more. A business loan can also be secured against a residential property. The procedure is very similar to that of a commercial mortgage except that the usual maximum that can be borrowed is 60% of the assessed Market Value. However, a few lenders will let you borrow up to 75% depending upon the deal and the security available. Interest rates on the loan are variable and depend upon the status of the borrower and the length of the arrangement.
These percentages are known as the Loan-to-Value ratio, or LTV. The lower the LTV, the lower the financial risk is to the lender. The higher the LTV, the greater the risk to the lender and it is probable that a higher interest rate would be charged. Lenders won’t usually advance above 75% LTV to try to make sure that there would be enough security in the case of a quick sale, often through an auction house when it is expected that property will sell at a discounted rate of up to 25% below the normal market value.
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