Property Financing

Yes if the borrower is an individual.

If the borrower is a Limited Company, it will benefit from the fact that the company has limited liability which means that directors cannot be held personally liable for any debts incurred by the company. A company is classed as its own legal entity, so ultimately, it is responsible for any debts accrued. Unfortunately, most lenders will require a personal guarantee from at least one of the directors or shareholders, at which point that individual will be personally liable under the terms of that guarantee.

A loan agreement may allow the borrower to prepay all or part of the loan before the dates specified in the repayment schedule. Lenders often charge early repayment fees because they are expecting to make a certain amount of interest by lending to you on a fixed-rate deal. Although there may be a prepayment fee, the borrower will save on interest if they make such a prepayment.

Loans can either be secured or unsecured, but it is common for lenders to require comprehensive security from the borrower. A secured loan protects the lender on the borrower’s insolvency. This gives the lender priority over any unsecured creditors, allowing them to maximise their recoveries if borrower insolvency occurs. The main disadvantage for the borrower is that the security often takes effect as a fixed charge, containing terms that restrict the borrower’s use. Ultimately the lender has the ability to sell the asset over which it has security in order to realise cash to satisfy its outstanding loan amount.

An unsecured loan means the lender has no recourse to specific assets if the borrower fails to repay. The lender will rank alongside all the other unsecured creditors of the borrower and may lose some or all its money. This can be better for the borrower as they have flexibility to use their assets with no interference from the lender. However, lenders often charge a higher margin for unsecured loans as the lender is taking on more risk.