Business Money
®
Guide to commercial loan tables
The Lender. Names of lenders are quoted in line with their criteria; the addresses and telephone numbers are listed on pages 68-69. The smaller building societies, marked with a , are also listed on page 69. They only lend close to their head office, but this will sometimes allow them more flexibility. If you have a client with a requirement in the area of one of these societies we suggest you telephone the number given. Loan to Value. The percentage exposure a lender will normally allow against a professional valuation. The Royal Institution of Chartered Surveyors has reviewed its Red Book guidelines on valuations provided for secured lending purposes. ERP (estimated realisation price) and ERRP (estimated restricted realisation price) are no longer acceptable valuation bases for commercial properties/trading entities. Valuations for secured lending purposes are now only offered under three headings. The categories are: MV: Market value. MV: Market value subject to special assumptions, which may include existing use as fully equipped operational entity, valued having regard to trading potential.
PP: Purchase price. Lenders and valuers can agree on a wide variety of special assumptions at the time of instruction. Any potential conflicts of interest must be disclosed by valuers at the outset and there are other reporting requirements, including those relating to the potential impact of the closure of a business on market value (again by reference to a choice of special assumptions). The latter is mandatory. Agriculture, bridging and development proposals may also be subject to different special assumptions. Banks, in particular, will sometimes lend more than the stated percentage; they will sometimes lend less. The capacity to service the borrowings is a vital factor. If the applicant is not making adequate profits, the loan may not be considered unless the acquisition is designed to remedy the position. If that is the case, projections need to be produced to demonstrate how. Amount Band. The minimum and maximum facility offered by the lender. Term Years. The minimum and maximum period of loan, in years, offered by the lender. Early redemption, usually with a penalty payable, is possible but you should always enquire on this point. Some fixed rate facilities can be expensive to close down before the agreed expiry date. Capital Holiday Years. The maximum period over which the lender will permit the borrower to pay interest-only without capital repayments. Endowment and pension policy linked loans normally have no capital repayments and are interest-only throughout their term with repayment coming from the maturity of the policy. This factor overrides limits quoted in this column.
74 November/December 2010
Rates Margin. The amount over the lender’s base or mortgage rate or Libor (usually three- month) at which the loan will be charged. Fee. The arrangement fee the lender will
£
seek. With some lenders this will be required in exchange for the offer letter, and care should be taken to ensure that the offer letter contains no terms with which it is difficult to comply. It is important to ask for the terms and conditions for checking before going to a meeting where you may be asked for a cheque. Leasehold Unexpired Loan End. Most lenders will make an advance against the security of leasehold property but they require the lease to have a period to run when the loan has been repaid. This figure is the number of years still to run on the lease at the end of the loan term. A few lenders stipulate a period of unexpired lease at the start of the loan. Other
Features. Some lenders have restrictions and benefits attached to their loan conditions. Interest
Rates.These are quoted in a variety of
ways: EAR (Lloyds) is a monthly managed rate x 12; Flat interest rate is calculated on the full sum of the loan throughout the period of the loan. Most refer to a margin over a rate, for example, Base Rate + 2%. The rates, to which the margin is added, are:
Bank Base Rate. This is quoted by banks and changes are advertised. A table is published on page 63 of Business Money. Most banks have the same base rate but there are exceptions and the figure should always be checked.
Finance and Leasing Association Base Rate. This figure is usually 0.25% to 1% above bank base rate. It is calculated on the last day of each month by averaging the daily cost of three-month Libor over the last eight weeks and rounding up the resulting figure to the next half point.
Building Society Base Rate. This is the rate quoted by building societies, before adding the margin, in commercial deals.
BBA Libor. The London Inter Bank Offer Rate, usually three-month but sometimes other periods of time can be quoted to suit your requirements. Most banks and building societies offer a Libor-linked facility for larger loans. Area Guide. Regions in which the lender will do business. Business sectors, using initials from head of the tables, also appear. The Major Banks. A few are reluctant to see their highest lending values quoted, as occasionally they will lend beyond them. Exceptions are justified by strong profit performance by the borrower. Many banks will insist on the current account business. Most of the banks will lend on anything in any category if the proposal is right.
Standard Proposal Pack
(a) Front sheet. (b) Comments. (c) Financial analysis. (d) Three years’ accounts for borrower. (e) Three years’ accounts for business being purchased, if appropriate.
Business Money
(f) CVs of borrowers, or memorandum and articles of a company with details of shareholders.
(g) Liability and asset statements for borrowers.
(h) Evidence of value of property to be purchased, details and rent schedules if appropriate, photographs if possible.
(i) Feasibility study if property development. (j) Evidence of pre sale/let agreement or agent’s opinion on sales appeal.
(k) Business Plan if appropriate with budgets, profit and loss forecasts and cashflow projections.
(l) Many lenders like to see bank statements for the last year for a new borrower.
Residential Mortgages for Business Purposes. Most residential mortgage lenders will make a further advance to a good borrower to raise funds for business purposes. Most will also consider remortgages for the same reason but in a competitive climate few lenders will want to see good borrowers slip away. Generally the minimum sum will be £25,001, though some have a smaller starting point. Most wish to see three years of audited accounts or two years of audited figures and one year of projections. Maximum exposure to valuation can be as high as 95%. Some lenders charge a premium on the standard mortgage rate but many do not and lenders are proving very flexible in order to hang on to business. We suggest that the existing lender is approached first and in most cases you will need to look no further. Most of the packages in this area are the same and we will not waste pages of space listing them each month. Some flexibility is on offer and our team will be happy to help you. Call the Business Money Professional Support Desk on +44 (0) 1458 253536 if a client has a requirement which can be met in this way.
Business Loans. The high street banks all offer business loans (see those carrying ‘7’ in the comment box in the Banks and Property Lenders table). All banks have packaged these products with differing terms but these packages are infinitely negotiable – the banks are willing to be flexible to meet your needs. If a bank cannot offer you the terms required, subscribers can call the Business Money Professional Support Desk on +44 (0) 1458 253536. Maybe we can suggest one that will.
DBERR Enterprise Finance Guarantee. A first class scheme to allow businesses, new or established, to borrow money when there is no security available. Your local DBERR office will be able to help you. Our team will help subscribers on the Business Money Professional Support Deskon +44 (0) 1458 253536.
Please have your subscriber number ready when calling the Business Money Professional Support Desk. All questions are welcome. This unrivalled service is for Business Money subscribers only.
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