Borrowing Power For Commercial Ventures

Beginning a commercial project comes with many challenges. Besides the functional aspects of running your business, you must also consider the financial requirements of such an endeavour.

With lending institutions tightening their belts over the last few years, it can be a< difficult to secure a commercial loan to support the development process.

While specific numbers are decided on a case-by-case basis, a commercial loan specialist can help you determine your borrowing capacity in order to prepare for negotiations with lenders.

The amount you are allowed to borrow often depends on the industry you are in and the amount of security you have but is generally expressed as an interest cover multiple.

Interest cover equals your net income before tax and depreciation divided into interest expense.

It may help to remember that a fully secured loan, such as a commercial property loan restricted to a maximum loan-to-value ratio of 65 per cent, may be based on an interest cover multiple of 1.25 -1.5 times.

On the other hand, a business loan secured by cash flow and partly secured by property may need an interest cover of three times or more.

To get more detailed information on your situation, talk to a Loan Market mortgage broker today.

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