Is There A Benefit In A Lower Loan To Valuation (LTV)?
If your business is seeking finance over the medium to long term perhaps to purchase new premises then is their any advantage in contributing more of the business’s funds to the purchase resulting in a lower level of borrowing being requested? In short, the answer may be ‘yes”.
When you approach your bank or other lending institution for the likes of a business loan or commercial mortgage the lender may take several factors into account before deciding what interest rate they would consider providing the borrowing at. For instance, they may take into account such things as how long the business has been trading profitably, the strength of the balance sheet and peruse the business cash flow forecast.
Another factor is the security margin that the lender will have as the lower the loan to valuation (LTV) then the lower the risk is to the lender of loosing any money should the borrower default on the loan. For instance, if the commercial premises are being purchased for say £200,000 and the borrower is able to contribute say £100,000 towards the purchase price then the LTV is 50%. However, if the borrower were only able to contribute £50,000 of their own monies towards the purchase price of the business premises then the LTV would be 75%.
In the above example, the business wishing to borrow only 50% of the purchase price may be offered the borrowing at a lower rate of interest than the business that wishes to borrow 75% of the purchase price. If this were the case, the benefit to the business owner is that the repayments are likely to be lower and the total amount of interest payable over the term of the borrowing is likely to be lower.
It may pay you to shop around for the likes of a competitive business loan or commercial mortgage as there are numerous lenders to choose from and one or more may be offering different rates of interest.