Applying For a Commercial Loan
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 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 most types of freehold or long leasehold buildings, such as factories, shops, pubs, care homes, guest houses, restaurants, office buildings, industrial units, blocks of flats and more. A business loan can even 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 offered. 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 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 levied. Lenders won’t generally advance above 75% LTV to try to ensure that there would be enough security in the event of a forced sale, often through an auction house when it is expected that property will sell at a reduced rate of up to 25% below the regular market value.
