Deciding to apply for a business loan is a big step, especially if it’s your first time. To help you decide if secured finance is right for you, here’s everything you need to know (without the BS).
When most people think about secured finance, they think about home loans and mortgages. And while that’s certainly a great example, what about business or commercial loans? Can you get secured finance for a commercial venture?
The short answer is yes, of course you can. So, let’s take a look at everything you need to know about secured finance before you sign on any dotted line.
What is secured finance?
A secured business loan is a loan secured by collateral. This means the lender holds a mortgage over a physical property owned by the borrower. The property will be worth more than the loan amount and, should the borrower default on the loan, the lender will sell the asset to recover their debt.
Secured finance means more can be borrowed – and with a lower interest rate – because most of the risk is borne by the borrower, not the lender.
Who offers secured finance?
Traditional lenders, such as banks and building societies, do offer secured finance. However, as their processes can take anywhere between six and eight weeks from application to the funds becoming available, this isn’t the best option for many business owners.
Let’s be real. If you need funds to address, for example, a temporary cash flow problem, even a six-week processing time is going to be no help. In fact, your business could be in a world of trouble if you have to try and manage a cash flow problem for six weeks!
This is when private lenders can help with funds available in some cases in as little as 24 hours.
What sort of security is needed?
The most form of security offered is real estate, either residential, commercial or rural. The amount a non-bank lender, like Strive Financial, is able to loan to you will depend on the value of the property and the equity held in the property.
How is the equity decided?
Your equity against which you can borrow will be determined in two parts. Firstly, an independent valuer will verify the property’s current market value. The lender will work out the Loan to Value Ratio (LVR), which is the amount you can borrow.
What’s a Loan to Value Ratio (LVR)?
The Loan to Value Ratio, or LVR, is the current market value of the property proportionate to the amount of money being loaned. To balance the risk to lenders, most will use an LVR of 80 percent, meaning you can borrow up to 80 percent of the value of the secured property. Therefore, if the borrower defaults on the loan, the property can be sold to repay the loan.
Why secured finance is good for business
If your broker has directed you to Strive Financial, there’s every chance borrowing from traditional lenders isn’t an option for you. It can be anything from you not having the mountains of paperwork they require or the months-long turnaround time doesn’t suit your business needs.
However you arrived here, we’re very happy you did.
Offering loan terms from just 28 days to 36 months, Strive Financial can lend anything from $20,000 to plug a cash flow issue to $3M to buy the piece of machinery that’ll take your business to the next level. Whatever you need, Strive is here to help you access the secured fiancé you need to make your business thrive
When it comes to business, cashflow is critical to success. This means having access to cash when you need it to buy stock, pay employees and cover regular bills and expenses. That’s why a small business experiencing cashflow issues – no matter how temporary – can quickly become a big problem. But what if you have the cash, it’s just tied up in your home? That’s an easy fix – you can apply for a short term loan secured against a property.
In other words, you can take out a second mortgage on your home.