Commercial Finance Explained

Here are some explanations which we think you might find useful

Interest Rates: An interest rate is the amount charged for a loan. It is usually expressed as a percentage of the loan amount that is charged on an annual basis. Because lenders often calculate interest rates differently, statutory regulations set out the calculation for the Annual Percentage Rate of charge (APR).

Annual Percentage Rate (APR) - The APR is the true rate of interest charged on a loan taking into account the total cost of interest and other charges (e.g. broker's fees / legal fees). The APR is intended to give consumers a level playing field to compare mortgages against each other.

Collateral - Assets pledged as security for a loan. In the event that a borrower defaults on the terms of a loan, the collateral may be sold, with the proceeds used to satisfy any remaining obligations. If this is a house, business or building the property could be repossessed by the lender in order that the can sell the security. Any amount received from the sale over and above the loan outstanding together with the lender's charges is refunded to the borrower(s).

Early Repayment Penalties: Some lenders levy penalties if you choose to repay the loan before its final maturity date. You should carefully investigate these charges if you think that you might want to pay the loan back early.

Repayment Schedules: The repayment schedule on a loan stipulates the length of time over which the loan will be repaid and frequency of the payments. Together with the interest rate, this information determines the size of the loan repayments.

Protection Insurance: Protection Insurance is an insurance policy that protects the borrower(s) in the event of accident, sickness, disability or in the most severe cases death. In the event of the policyholder becomes financially unable to maintain repayments because of illness, death, redundancy, or any other specified cause the mortgage is . Most lenders offer credit insurance on their loans and include the premiums on the insurance as part of the monthly repayments on the loan. Credit insurance is not included in the calculation of APR so a loan with or without credit insurance would have the same APR but different monthly repayments. Most lenders would like to see the mortgage protected with life insurance so that the mortgage is paid off upon the death of the borrower. This will protect both the bank and any dependants or partners involved. NBCF recommend life protection on all our business loans.

Secured Loan - A loan with assets (usually, a business, freehold commercial property or home equity) pledged as collateral. The value of the collateral mitigates the lenders risk.

Unsecured Loan - A loan without any collateral which depends on the credit history and financial position of the borrower.

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