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Choosing From the World of Commercial Loans

Sep 3, 2008
Any type of loan that is granted to someone in the business sector is collectively known as commercial loans. It could be a mortgage, a bridging loan, part of a finance deal for property development, or even an overdraft facility. Invariably, the type of loan has the prefix 'commercial' in its name.

There are a number of financial providers who lend to either or both the business and private sector. Generally, the lenders all have differing criteria for an application to be successful. It is also common for them to offer differing terms and interest rates. It could therefore be deemed advisable to research the market place extensively before committing to any commercial loans. If this task seems daunting, then making use of the services of a commercial mortgage broker could be the answer.

The choice of the commercial loans to apply for is dependent on the reason for its request and circumstance. A business with a poor credit history or a self-employed person with no accounts could still be granted commercial loans. However, the increased risk for the lender could mean that deal might have higher rates and less favourable terms. Conversely, those who are experienced and have a profitable status generally are offered better deals.

Should funding be required quickly, then this could be achieved by obtaining a commercial bridging loan. These are short-term mortgages and are generally expensive but can be raised relatively quickly. The loan amount is secured against the property about to be purchased and normally 80% LTV (loan to value) if offered. It can be possible to gain 100% LTV if a lower purchasing price is negotiated. This is because the current market price is used for its calculation and not the purchasing price.

Another member of the commercial loans family is the commercial mortgage. These are granted so that a business can buy property or land, or can be used to purchase an on-going concern. These are long-term financial deals of varying duration and payment schedules. They are calculated on the ability of the business to make the repayments and generally require a minimum deposit of 20%. If premises are to have a mixed use of both domestic and commercial, then a semi commercial mortgage is applicable. Again, the lender requires proof that the repayments could be met but in this instance, the income could come from a variety of sources. Both these types of commercial mortgages could also be used as a re-mortgaging facility to cover expansion and refurbishments.

Commercial loans are also present in property development finance. These deals could consist of an assortment of short and long-term elements, including equity and mezzanine finance, plus bank debt. High street banks normally only grant 50/50 funding (50% for the acquisition and 50% for the building). This can be increased to 70/70 if the developer is experienced and with a good record. If a greater amount of finance is required, including 100% property development finance, then that is when using a commercial mortgage broker can prove invaluable. They are usually in a better position to source the marketplace and construct the best deal from the complex selection of commercial loans available.
About the Author
Sean Horton is a Director of Best Commercial Finance, commercial mortgage brokers and IFA specialising in commercial bridging loans and the associated areas of income protection, mortgage protection, mortgage life cover.
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