Every lender has its own policy and pricing guidelines both of which can vary depending on the % loan to value and attitude to risk in any given business sector.
Although it may be possible to obtain 100% finance this will invariably be in exceptional circumstances where the lender is fully secured on a written down basis and serviceability of the debt can be comfortably covered by the business profits being generated. Most lenders apply a stress test which takes into account any future increase in interest rates and use of fixed rates of interest may be encouraged to offset this risk.
When seeking to establish what % deposit is required from any given lender for a freehold business it is important to differentiate between the “market value” and “bricks & mortar value”. Some, for example, will only lend up to 70% of the bricks & mortar value, ignoring the goodwill element that is included in the market price.
One of our lending sources will lend up to 75% of market value subject to this not being more than 100% of bricks & mortar value but on a very selective basis to experienced operators.
Leasehold & Goodwill & Asset Businesses
Neither of these business types provides any deed security to a lender so in the absence of any additional security the smaller number of lenders prepared to consider lending in these circumstances will generally require a 50% cash deposit. In such cases we regularly tap into the governments “Enterprise Finance Guarantee Scheme” which provides the authorised participating lenders with the comfort of otherwise missing security.
Some lenders will take a second income into account if this can continue to be generated from outside of the business without any impact. Pensions that are already being drawn down would be a very welcome additional source.