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Has anyone approached a business manager or bank for a Business loan to use the loan amount as a deposit?
In the business plan the debt (business loan and Mortgage) would be serviced by the rental income.
I keep getting little ads flashing up for a small business loan when I log into my business account. It just got me thinking how best to approach my manager with this idea
Shaon (the bass playing Landlord)
If anyone is in Camden Town, London on the night of April 9th I'll be playing a gig from 8pm onwards at The Purple Turtle. Just message me for further details
Flipping it around a bit.
When you fill out the application for the loan that will be secured by the property (what some call a mortgage) there is a slight problem. You need to declare where the deposit has come from. If you borrowed the money some number of months ago, the cash will be parked in a savings account so you would just tell the lender the deposit is from savings. They would already see the loan on your list of liabilities. If the loan is really new it would not show up on a credit report. You would still need to declare it on the list of liabilities.
When the lender looks at the cash flow (income minus expenses) the borrowed deposit could be too much of a drag on your cash flow for the lender to feel comfortable approving the loan to buy the property. The lender wants to see the total income and the total expenses. They want to have a reasonable to a large cushion of surplus cash flow before approving more debt.
So, the general principal is fine if the numbers stack up. Similar to any other debt that a person takes on before they apply for a home loan (examples being a car loan, a lease for equipment and other commitments or drains on the person's cash flow).
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Hi Shaon - more chance 'Knitting Fog' I'm afraid, no lender is going to take a 100% lend chance on you on one property even though as like most people you will have the ability to raise a certain amount of money unsecured (the business loan part).
This was in effect what the result of Northern Rock's lending policies were when that all went wrong back in the late summer of 2007.