If the uncertain economic times have taught us anything, it is that a lack of knowledge and awareness, coupled with complete blind faith in banking authorities and high street lenders can often leave borrowers worse off than expected.
When procuring any form of commercial lending, the aim of the borrower is simple; to ensure that financial security and in return commercial longevity remains a sure fire possibility however, just how much are borrowers aware off when securing commercial finance? A lack of knowledge surrounding even the most basic terms can leave you at risk, with many lenders often declining those who fail to provide any indication of commercial loan awareness.
Are you aware of the most basic terminology that may come your way during a commercial mortgage application process? Do you know as much as you need to, in order to ensure your business is in the safest hands? Do you possess the required information to be considered a knowledgeable and aware borrower?
The exact terminology you may come across during the commercial mortgage application will vary from lender to lender however, a basic understanding of the most common expressions may assist you in your decision making process and determine the success of your application.
The range of financial terminology surrounding the commercial mortgage application process can be quite extensive however, below are few of the most common terms that may arise:
- Intermediary- During your search for the right lender, you may come across the term intermediary, quite often. An intermediary refers to a commercial mortgage broker; a lender that acts as a middle man, working for a business to secure the ideal commercial finance solution. In today?s unsettled economy, intermediaries have proven to be the most successful route for many small and medium businesses.
- Guaranty- When seeking to borrower a large sum of money; lenders will often ask that a guaranty be offered to secure the finance. The guaranty in question may be anything deemed suitable and worthy by the lender however, more often than not during a commercial mortgage application; it will be the commercial property itself that will be taken as the guaranty.
- Interest Rate- Interest rates are common amongst all borrowing and refer to a percentage of the borrowed sum that is charged for its use. Some of the nation?s long running banks have notoriously been known to charge cripplingly high interest rates however notably; interest rates are often considerably lower with commercial mortgage brokers.
- Risk Assessment- Conducting a risk assessment of a borrower is not uncommon for any lender. Analysing business projections, cash flow, bank statements, accounts and any other necessary information; lenders will use LTV and DSCR ratios to determine the risk level of the borrower and analyse whether repayments on the required sum can be comfortably met.
- Investor Experience- For many lenders, understanding the borrower in question, career and industry knowledge and past commercial finance experience is crucial in determining borrowing capability.
- Fee- There will be a range of fees attached to a commercial mortgage ranging from arrangement fees, application fees, borrower fees, management fees, legal fees and so forth; it is wise to remain aware of all the fees that will be attached to the commercial mortgage agreement.
- Equity- A stock of investment that has been contributed to the mortgage, that can be used by the loan owner for business expansion or further needs. ?A commercial mortgage broker will be able to discuss the potential of equity release attached to your mortgage.
- Minimum Loan- The minimum sum of money that can be borrowed within a commercial mortgage agreement (it is wise for many small businesses, to ensure that they discuss this with the lender, as even the minimum sum may be too extensive)
- Maximum Loan- The maximum sum of money that can be borrowed within a commercial mortgage agreement.
- Deposit- Although many lenders offer 100% of a desired sum; within a commercial mortgage agreement, more often than not, a deposit will be required. A deposit will be a percentage of the loan, the exact figure of which will be determined by the lender.
The above are a few of the common terms that first time commercial finance borrowers may come across. Understanding the basics will ensure you remain aware and cautious of what your business could face when searching for the ideal commercial lending.
Are you a knowledgeable borrower?
This entry was posted in News. Bookmark the permalink.Source: http://www.charlestonfinancial.co.uk/commercial-mortgage-basic-terms/
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