A Guide To Getting a Commercial Loan
Business loans or commercial loans are designed for a wide variety of small, medium and startup business needs including the buying, refinance or expansion 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 building being acquired.
A loan for a business can be secured against many types of freehold or long leasehold properties, such as factories, shops, pubs, residential care homes, guest houses, restaurants, office buildings, industrial units, blocks of flats and more. A business loan can even be secured against a residential building. 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 let you borrow up to 75% depending upon the proposal and the security available. Interest rates on the loan are variable and depend upon the credit history 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 higher the risk to the lender and it is probable that a higher interest rate would be charged. Lenders will not usually advance above 75% LTV to try to ensure that there would be sufficient security in the event of a quick sale, often through an auction when it is expected that property will sell at a discounted rate of up to 25% below the regular market value.
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