A long-term commercial loan is a type of financing that offers businesses extended repayment terms over a period ranging up to 30 years. It allows companies to borrow funds at a fixed margin over base interest rates and pay it back over an extended period. This type of loan can be used for purposes such as acquiring or expanding a business or buying real estate, equipment, or inventory. They are typically only available for owner-occupied enterprises, but they can also be offered to commercial property investors in some circumstances.
Secured and unsecured loans
When it comes to commercial loans for businesses, the security provided for the loan is an important factor to consider. Qualifying businesses may be able to borrow through secured or unsecured loans. A secured loan requires property collateral for security on the loan amount borrowed, meaning if you default on your repayments, the lender has the right to recover their funds from the collateral. It is possible to borrow up to 100% of the value of the property used for security, although typically, these loans are secured at a maximum of 80% of the property value.
On the other hand, an unsecured loan does not require any property security and is usually offered at higher interest rates and shorter repayment periods than a secured loan. Unsecured loans will typically require a General Security Agreement over the company borrowing and a personal guarantee from the director and any major shareholders and carry maximum terms of up to 5 years.
Secured loans can provide more competitive interest rates and more flexible repayment options and are much better for business cash flow due to the potentially long repayment periods. The downside of such loans is that property security will need to be offered. This often means tying in the directors’ assets into the business’s obligations.
Unsecured loans involve a higher degree of risk to the lender because there are only the non-property business assets to secure the loan amount if you fail to meet your repayment obligations, and so they will generally charge higher interest rates and require shorter repayment periods.
However, it is essential to note that both secured and unsecured commercial loans carry their risks. For secured loans, if the asset used as security declines in value, then it may not be enough to cover the outstanding debt, and if the personally owned property has been used as security, this can put your financial situation at risk. This has to be balanced against the lower rates and repayments compared to unsecured debt. Ultimately, it pays to get sound advice from experienced professionals before deciding whether you choose a secured or unsecured loan for your business.
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