Business equity loan
Did you know you can get an excellent interest rate for your business loan if you use residential property as security? While most banks will still refer you to business banking and charge you a higher rate, some lenders can consider giving you the discounts normally reserved for normal home loans
Our mortgage brokers are experts in helping people to release the equity from their home to buy a business or fund their business expansion. Please enquire online to see how we can help you with a discounted professional package for business purposes.
Why do banks charge more for business loans?
Our customers commonly ask us why the banks charge more for a loan that is used for a business as opposed as a loan used for another purpose. Considering that the bank has the same equity in the property as security, why is it that commercial or business finance has a higher interest rate?
- Higher risk to the lender: There is no doubt that for a start up business or for the purchase of an existing business there is a higher risk to the lender than there is for a standard home loan. However there is not a higher risk of default when lending to an existing business with a proven track record.
- The credit assessment is more involved: Lenders can easily assess home loan applications using quick and easy methods such as credit scoring. However when assessing a loan for a business there is no alternative to experienced credit managers & business bankers, whom are often on high salaries.
- Because they can!: There is a lack of competition in the commercial finance market with the majority of customers using one of the four major banks. Because the market is not as transparent as it is for standard equity loans, many borrowers are simply unaware of the cheaper options and discount packages.
How to get the lowest interest rate
There are three main sections to getting the cheapest possible equity loan to release funds for use in your small business:
- Apply with the right lender: The first mistake that most people make is to approach their current bank to get a business loan. The key to getting a low rate is to find a lender that will assess your commercial loan as a home loan, and can give you home loan rates. This can reduce your rate by as much as 1% to 2%!
- Use your equity in residential property: Residential security such as a house, unit or block of land can be accurately valued and sold quickly, so is excellent security for a loan. Commercial properties are difficult to value and take a long time to sell, so loans with them as security tend to have higher interest rates.
- Use 100% secured loans: If your loan is not completely secured then the rate will be much higher or the loan declined. Generally where you are borrowing more than 90% of a residential property or 70% of a commercial property then your loan is a very high risk application. We can only assist with secured business loans.
Our mortgage brokers are specialists in finance for small and medium businesses. If you own a property and would like to use it as security for a business equity loan then please enquire online and one of our brokers will give you a call to discuss your needs.
How much can you borrow?
We can help you with a secured business loan using either residential property or a commercial property as security. You can borrow:
- Up to 80% or even 90% of the value of your residential properties at very competitive interest rates.
- Up to 70% (higher as an exception to policy) of the value of your commercial properties.
How do banks assess business loans?
In many regards the assessment of a business loan is similar to that of a normal home loan. There must be adequate security, income to repay the loan and the borrower needs to have an excellent credit history. In addition to these basic requirements there are some unique aspects of the loan that are also assessed:
- Purchase of a business: Although there may be financial statements confirming the businesses current income there is no guarantee that the new owner will get the same results. For this reason lenders are conservative when assessing this type of application.
- Start up businesses: Banks can consider lending to a new business if there is a solid business plan, cash flow projection and the owner has experience in the same industry. Start up business loans must always be fully secured by property.
- Working capital: Borrowing to expand a current profitable business is the preferred type of business loan for lenders. These loans are considered to be a low risk as there is already a proven income & tested business model.
- Cash out: Banks consider equity releases or “cash out” to be a high risk for most business loans. In some cases we can assist with these applications where residential property is available as security.
- Directors experience: Inexperienced owners / directors can be very risky for the lender. If you do not have experience in the industry that your business is in then it is likely that you will require residential security for your loan.
- And much more: The assessment of business loans is complex and beyond the scope of this article. We recommend that you discuss your situation with one of our mortgage brokers and they can let you know how the banks will consider your application.
Apply for a business loan using your equity
Whilst most mortgage brokers are salesman, our brokers are specialists in the unique credit policies used by each lender. For this reason we are very good at helping people to obtain a business loan, which can be significantly more complicated than a standard residential loan.
If you have a home, investment property, commercial property or other real estate that you can use as security then please contact us and we can quickly work out what loans you can qualify for and which lenders can give you the best possible interest rate discount.
