Borrowing Money

Borrowing the money to purchase a motel, management rights or business……How much can you borrow?

As a rule of thumb, lending institutions will generally fund towards the purchase of a motel, up to 70% of the freehold value and 30%-40% of the leasehold value, and for management rights businesses up to 80% of the unit title value and between 30%-40% of the business value of the management rights agreement. This is dependent on individual circumstances and best to speak with your financial institution to confirm your borrowing capacity at the earliest opportunity in the buying process.

The amount lent to any given person or organisation is usually limited by the collateral they can provide and their ability to repay the loan. The larger the business loan, the more security required and the greater the repayments need to be. Lenders will look at your assets and liabilities as well as the assets of the business. They will then consider the debt servicing ability of the business and any other outside income you can introduce or debt you are currently servicing.

Security and collateral requirements: Houses are great - Banks will usually lend 80 % of the value of your home and or rental properties. This often becomes a good option as borrowing against the residual equity (value of house – debt) in your home can be more attractive as residential rates are more attractive than paying business finance rates.

There are few lenders who will consider plant and equipment for security, and these are unlikely to go over 50% of their value.

Security: The banks are risk adverse now and it is very difficult, but not impossible, to get a loan without security. Your home is a good place to start and the banks will generally lend up to 80% of its value, commercial property lending ranges from 50% to 70% depending on the property offered. Anything else will more than likely not be acceptable to the bank.

Debt servicing: If you are in a start-up business or can't provide historical trading figures you will find the banks unwilling to help you. Ideally you should have the last 3 years profit and loss, current monthly trading figures and projections going forward for approx. 18 months. Interest cover of approximately 3 times or better would be good for the banks.

Experience: You should always provide your CV.

Credit History: Have you got a clear credit record?

Business plan: You should have prepared one of these and be prepared to talk through it if you get a chance to discuss it with a banker who can approve your loan.