Secured Loans
There are a number of specialist lenders willing to advance finance secured by way of a second charge against the applicant's home, or other property, over a term of between 5 and 25 years. In general terms, the maximum combined loan-to-value (LTV) of the existing mortgage, plus the proposed additional borrowing, should not exceed 90%. In fact, some lenders will restrict the maximum LTV to 80% if for business purposes.
As the lender would be second in the queue for security, this involves a slightly higher risk which means that a higher interest rate would be charged, the interest rate depending upon the applicant's credit history.
If application is made for a secured loan, the lender would need to obtain permission from the first charge mortgage lender to be able to attach a second charge. This is normally not unreasonably withheld.
As with any form of borrowing, a credit reference check or "credit score" will be undertaken at an early stage - requiring the applicant's permission.
Advantages of Secured Loans:
Although a secured loan will be might be more expensive in terms of the interest charged in some cases, the following advantages may apply.
1. A secured loan may usually be raised much quicker than finance via a remortgage. Whereas it might typically take three weeks to arrange finance via a secured loan, it usually takes at least six weeks to remortgage.
2. The applicant may be tied to a mortgage lender offering a low interest rate for say 3 or 5 years, which might involve early redemption charges if the mortgage is redeemed prematurely. In using a secured loan, the mortgage can remain in place to avoid such a charge.
3. Whilst the applicant may have a 25 year mortgage, he may not wish to extend his business finance for such a long term, which would be the case if he remortgaged.
4. Finance raised via remortgaging cannot be offset against the future profits of the business for tax purposes. However, a separate secured loan can be clearly identified as being for business use and offset against tax accordingly.