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Equity loans and Rates

equity loan rates, equity loan, loans

The amount of money being tied up either in a property or in business is know as “equity”. Securing financial assistance could be in two forms. One is a loan issued to finance a project and to be paid with interest at the expiration date.

However, the larger is the loan amount, the more the borrower will be required to produce sufficient proof of the project’s viability in terms of profit making based on the cash flow projection. Aside from the cash flow projection, the borrower may be required to produce collateral to ensure the repayment of the loan.

The lender may be interested to invest in a business through equity participation. In this case, he becomes a shareholder by putting in some amount of money into the business. Sometimes, equity participation may be in the form of debt/equity conversion scheme. This is where the investor looking into the business through studying the relevant financial documents of the past three years or more and when he is satisfied, pays some part of the debts the company owe as his equity capital he put into the business. In this case, becomes an equity investor.

Base on agreement, the amount of money he put into the business may either be paid back to him with interest or may be receiving some part of the company’s profit.

Let us also take a look on income producing properties: The income producing properties are the most type of assets lender preferred to issue out equity loans to borrowers. The property may be new or fairly used industrial equipment which may be used for hire. The equipment or property used is subject to depreciation as the years goes on. The lender may want to get detailed information of its depreciation in order to determine the amount of equity involve and in order to determine the amount of equity loan he could give based on the prevailing market rate.

The more preferable asset is the real estate; this include building - be it commercial, industrial and personal buildings. The other name of loan issued based on the equity amount of an asset is known as” mortgage loan”; The mortgage loan could be of three categories: The first is known as "1st mortgage loan", the second is known as "2nd mortgage loan" and the 3rd is known is "3rd mortgage loan". The lending rates of each mortgage loan varies based on the level of credit risks involve.

Whenever you are using either your personal, commercial building (such as filling station, hotel,. Motel, hospital ect) or industrial building( use for manufacturing purposes) to obtain an equity loan, the lender wants to know if the property had been mortgaged through any financial institution.

The industrial equipment which is subject to depreciation, has to be appraised of the present and future value taking into account, the period the equity loan would be paid
Such properties involving equity loans have to be appraised by experts providng appraisal service and property evaluation. This appraisal or evaluation report should be prepared by independent experts who have no interested in the business between the lender and the borrower and are not interested whether the lender will approve it or not; they go ahead and present their report based on the condition of the property under evaluation and based on the present and future market price should be property be sold in case of none compliance by the borrower at the expiration of the time agreed for repayment.

Based on the evaluation report, the lender may loan up to 30 to 80 percent of the equity amount depending on the condition of the equipment whether it is fairly used or old and based on the level of depreciation. The longer the property remains in use, the more its functional ability will be reduced and sometimes could be beyond maintenance.

This is not the case with building, whose land is owned by the borrow; so he owns both land and the building. The building could be one day be destroyed but the land remains forever generating more income; it could be on leased to any company or business.

Equity loan is easier to obtain where the owner provide sufficient documental evidence of ownership as could be used as collateral specially if the property is located in an industrial or urban center. Such property could be easily mortgaged by two or three different lenders dependant on the equity amount involved being appraised by expects.

The first equity loan known as 1st mortgage loan often goes with soft terms and payment of interest; the second mortgage loan interest is higher than the first for the fact that the property is already mortgage and third mortgage is not easily obtainable unless this is still sufficient equity in the property

In all cases, the borrowers should produce sufficient document to prove to the lenders that they are the owners. Apart from judging on the equity value of the property they also consider the amount of insurance covered in case of fire out break, earthquake or other form of natural disaster; the lender can still claim his money using the insurance documents.

All equity loan rates depend on the prevailing market rates and based on the equity amount involve Equity loans and rates

Published: 2006-04-10
Author: Goodnews Adolphus

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