Obtaining a Commercial Loan
Secured business loans or commercial loans are designed for a wide range of small, medium and startup business needs including the purchase, refinance or expansion of a company. 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 building being acquired.
A business loan can be secured against many types of freehold or long leasehold buildings, such as factories, shops, bars, residential care homes, guest houses, restaurants, office buildings, industrial units, apartment blocks and more. A business loan can even be secured against a residential property. The lending criteria 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 business loan are variable and depend upon the credit history 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 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 won’t generally advance above 75% LTV to try to make sure that there would be enough security in the case of a forced sale, often through an auction when it is expected that property will sell at a lower rate of up to 25% below the regular market value.
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