Undervalued Properties Prevent Business Loans
Although most high street banks claim that they are offering loans to small and medium sized businesses, a large number of smaller firms are still finding that they are unable to get the loan they require to develop or maintain their business.
The majority of lenders will require some form of security for a business loan, in order that they may recover their losses in the event of the loan defaulting. In most cases this is most likely to be some business premises owned by the firm, or the Directors own homes.
The Forum of Private Business has suggested that many surveyors are not giving an accurate valuation of the property when they are assessing it for the security for a business loan and an undervaluation can often have a negative impact on a firm’s ability to get the full amount of the loan they require.
A lower valuation than expected will increase the loan to value, which in turn increases the interest rate which is likely to be charged, or in some cases could mean that the loan is rejected altogether.
Somewhere in the region of three quarters of all business loans are offers on a secured loan basis and a business could expect to pay an interest rate of around 4.5 per cent on a secured loan.
An undervalued property could mean that the company has to try and obtain an unsecured loan, which is likely to charge them somewhere in the region of 11.8 per cent in interest for a similar loan amount, if they are accepted for it at all.
The Forum found that commercial property in particular is difficult to value accurately, and this is having the effect of making surveyors particularly cautious when valuing such properties, thereby leading to limitations on the amount of business loan available.
