The History of Business Loans

The first business loans possibly date back to ancient Greece. One of the most important services offered by Greek bankers was the lending of money to finance the carriage of freight by ships. They also lent money for mining, and construction of public buildings. Later, during the middle ages, the Jews fled for their lives to Italy, where they encountered grain farmers looking for money to help support their businesses. The Christians, who were the current settlers of Italy, were forbidden the sin of usury, or charging a fee for the use of money. Today, the word usury is used to describe placing unreasonable interest rates on borrowed money. Therefore, this opened the door for the newcomers, the Jews (who were merchants), to lend money to farmers. The term "merchant bank" derives from this origin and was one of the first banks that offered "business" loans to the grain farmer. Merchants remained the main source of funding for trade and business loans well into the 1700's. In 1781, the first commercial bank received a charter of incorporation in North America.

They gave short-term credits to American merchants, who then extended them to wholesalers of their imports, and the wholesalers passed them on to urban retailers, country stores, and peddlers. By 1789, the nation boasted three commercial banks. One of the most famous men noted for loaning the "little man" money for business is A.P. Giannini. Historians have referred to him as "America's banker". Up until this time, most banks would only loan money to those that were wealthy. In 1904, Giannini opened up the Bank of Italy in San Francisco. Hard working immigrants looking to open businesses and buy homes were given the opportunity to finally borrow money. After the earthquake that destroyed much of the city in 1906, Giannini once again came through; giving loans to people to rebuild their lost businesses. By the mid 1920's, he owned the third largest bank in the nation. In 1930, he formed the Bank of America, which withstood the Great Depression, funding large industrial and agricultural interests, as well as building California's movie industry and even loaning the money to the city for the building of the Golden Gate Bridge. One of the most important types of business loans available to Americans are backed or guaranteed by the American government. These loans are available to small businesses and ordinary people that may not qualify for other business loans. The Investment Company Act of 1958 established the Small Business Investment Company Program. This program enables the government to regulate and provide funds for privately owned and operated venture capital investment firms. These firms then in turn provide loans to high-risk small businesses. Since 1958, the government by means of the Small Business Administration has put nearly $30 billion dollars into the hands of business owners to finance their growth. Currently, the SBA is working with minorities and women regarding their business ventures (www.sba.gov). Throughout history, merchants, bankers and government agencies have been keeping the entrepreneur's dreams alive by allowing them to borrow capital based upon an idea, service, or product. These dreams are still alive and well today, and are being realized every day thanks to governments and bankers alike.

Loans make a great investment

Perhaps you read this title and thought to yourself, “how is this possible? Is it a trick?” Let me assure you that it is not a trick. Indeed, it is very real. There is no scam. It’s an age-old investing strategy called leverage. Leverage is using the right balance to use a little force to generate a big motion. Investment gurus have been doing it successfully for years in margin accounts to borrow stocks, make money on them, then sell them. The difference in price is their income.

But this is not a crazy investment scheme. It’s a tried and true method of investing that you’ll feel completely at ease with.

If you own a home, you can get a secured loan to help you leverage the value of your home into a greater amount. Here’s how.

When you bought your home, you paid a certain amount for it and although you have been enjoying it over the years, you (like many other people) probably hope that your home will increase in value so when you sell it you’ll make money. Who doesn’t want to do that?

So here’s where a secured loan comes in. A loan, when used to improve your home, can help you increase the value of it. And often, the overall value of your home increases at a greater rate than the amount of the loan! That’s great news. And that’s leverage!

So you should get a secured loan and build that addition, put on a roof, get new windows, or give your house a paint job. Whatever you decide to do, you’ll be helping to increase the value of your home, which is an investment you can enjoy until you decide to sell.

And a secured loan lets you do that inexpensively. This is because a secured loan is a loan that uses the guarantee of an asset to help you secure a loan. When a lending institution is deciding whether or not to give you money, they look at the potential risk they will take. If you have nothing to offer them but your credit rating, the risk is higher than if you have a home, a car, some stock certificates, or some art. Anything of value will help them reduce the perceived risk they feel because they can potentially take the asset and earn back their money by selling it should you not be able to make payments.

So if you want to make money on your home, and most people do, you should consider getting a UK secured loan to help you leverage. Get the loan, improve your house, and sell it for a greater amount.

Mortgage Glossary of Terms

Adverse Credit The term used if the borrower has a poor credit history. This could include previous mortgage or loan arrears, bankruptcy or CCJ's. Other terms used to describe an adverse credit mortgage include: Bad credit mortgage Poor credit mortgage Non status mortgage Credit impaired mortgage No credit mortgage Low credit score mortgage APR (Annual Percentage Rate) The interest rate reflecting the cost of a mortgage as a yearly rate. The APR provides home buyers with the ability to compare different types of mortgages based on the annual cost of each. Arrangement Fee The fee you pay your Lender in return for them providing you with a mortgage. Usually paid on completion or with your application, these fees usually apply when you take out a fixed rate, discount or cashback mortgage. AST (Assured Shorthold Tenancy) A form of tenancy that gives the landlord the right to repossess their property after a set amount of time laid out in the tenancy agreement. New tenancies are automatically ASTs unless otherwise stated. Assured tenancy The landlord can charge a market rent (the current rate for similar property in that area) and take back the property under certain conditions, as set out in the Housing Acts of 1988 and 1996.

Bridging Loan/Finance Short term loan to enable the purchase of one property before the sale of another essentially releasing funds that are required for the purchase. You should always consult a professional before considering any bridging finance as it could be a solution that is worse than the problem. Brokers Fee A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower. Buildings insurance Insurance you can take out when you buy a property that will cover the cost of any damage to the house and or contents.. Buy to Let A mortgage meant for those who wish to purchase a property to rent out to others. The decision on whether you are able to repay this type of mortgage is often based up on the future rental income from the property rather than the personal income of you the borrower. CCJ (County Court Judgment) A judgement reached in the County Court generally realted to non payment of a loan, mortgage etc debt in general. If you pay off the debt, the CCJ will be satisfied and a note is put on your records that states this. Chain A housing 'chain' made up of a number of buyers and sellers, essentially the line of buyers and sellers involved in each house move. Charge Any right or interest, especially with a mortgage, to which a freehold or leasehold property may be held. Basically a charge is the claim the lender has on the property until the mortgage or loan is satisfied. Completion The term used when the seller and buyer exchange the finances required to buy a property through their respective solicitors. At exchange of contracts a deposit, usually 10%, will have been paid. At this point the buyer becomes legal owner of the property. Conveyance The legal process in which ownership of the property is transferred from the seller to the buyer. Generally undertaken by a solicitor, or licensed conveyancer. Early redemption fee If you decide that you want to sell your property or remortgage then you will be redeeming you mortgage early. Most lenders charge a penalty fee, especially during any period of a fixed, capped or discounted rate. Be sure you are clear about any potential penalties when you are about to take on a mortgage. Equity and negative equity The amount of value in a property that isn't covered by a mortgage - simply take the amount of the mortgage from the valuation to work out the equity. vThis is where the money you owe on the mortgage is greater than the value of your property. Exchange of contracts The contract is a written agreement that lays out the terms between the buyer and the seller. When both parties exchange contracts, usually weeks before completion, the deal becomes legally binding. Often a deposit of around 10%, is paid at this stage. Fixed Rate A set interest rate on a mortgage fixed for a period of time. This varies from lender to lender. Freehold If you are the property owner outright then your property is freehold. Most houses are freehold wheres many flats are leasehold, since you are not the owner of the whole building containing the flats. Gazumping If you are in the process of purchasing a property and your offer has been accepted but the seller gets a better offer, before you complete, and takes it then, you've just been 'Gazumped'. Interest Only Mortgage A mortgage whereby the borrower is only required to pay inerest on the amount borrowed during the mortgage term. It is the borrowers responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the full mortgage at the end of the term. Intermediary A mortgage broker or advisor who finds the most suitable mortgage for a borrower and arranges the mortgage on their behalf. Leasehold If you buy a leasehold property you don't own the property rather the right to live there for a specified period of time, however much time remains on the lease. The owner of the property is called the freeholder or landlord. Liability This relates more to commercial mortgages. With a commercial mortgage liability for the repayment of the loan depends on the legal structure of the business: A sole trader will be personally liable for the mortgage debt. Personal assets could be seized if the business defaults. Partners are jointly liable for the debts of the partnership and their personal assets are at risk. With a limited-liability partnership and a limited company, the liability falls firstly on the business rather than on the individual partners and directors. The lender may take a floating charge on business assets in general, rather than simply on the current property being purchased. The lender may also insist on personal guarantees as a condition of granting the loan, in which case the partners and directors may be held personally liable anyway. Life insurance If you have a joint mortgage, life insurance can be acquired that will see the mortgage paid of should one of you pass on. LTV (Loan to Value) The size of the mortgage as a percentage of the value of the property i.e. A £90k mortgage on a house valued at £100k would mean an LTV of 90%. MIG (Mortgage Indemnity Guarantee) A one off payment made when you set up a mortgage a kind of insurance policy for the lender. This offers them protection against the value of the home falling to less than the mortgage. It is generally only charged to borrowers with a less than 10% deposit, but this can vary. Mortgage A loan to buy a property where the property is used as security against you paying back the loan. Mortgagee The company or organisation that lends you the money. Mortgagor The person taking out the mortgage. Non-Status Where a lender may not require income details from you or may accept some previous poor credit history i.e. CCJ's or previous mortgage arrears. Payment Holiday A period during which the borrower makes no mortgage payments. Regulated tenancy A legal right to live in your accommodation for a period of time. Your tenancy might be for a set period such as a year (this is known as a fixed term tenancy) or it might roll on a week-to-week or month-to-month basis (this is known as a periodic tenancy).You are a regulated tenant if you moved in before 15 January 1989, you pay rent to a private landlord and your landlord does not live in the same building as you. Remortgage The taking on of a second mortgage to pay off the first. The most common reasons for doing this are that another mortgage is available at a better rate or that the value of the property has gone up allowing for the opportunity to borrow more money against the property. Right to Buy For example, a tenant in a council owned property may purchase the property at a discount depending on length of their tenancy. Self Certified Generally when a borrower applies for a mortgage he or she will be asked to provide pay slips or company accounts to prove their income. If it is difficult or inconvenient for you to provide this evidence, you can choose to self-certify your income. This involves signing a declaration which states your income sources and amounts. Lenders will charge you higher rates than average and offer you a limited range of mortgages if you choose to self-certify your income, in general it's not a good idea to self-certify just to avoid some paperwork. Stamp Duty Tax paid by the buyer of a property set at 1% for properties over £60k, 3% for properties over £250k and 4% for properties over £500k. Structural survey The most wide ranging check of the structure of a property. This is carried out by professional surveyor and should uncover any defects or faults with the building. Tenancy A legal written agreement between a landlord and tenant that sets out the terms of the rental. Term The period of years over which you take the mortgage and repay it. Term Assurance An insurance policy designed to repay the mortgage on the death of the insured person. Level Term Assurance covers a principal sum throughout the policy term and pays out the full amount on death. Reducing Term Assurance is designed to repay the balance outstanding on a repayment type mortgage upon death. Term Assurance may also pay out early on the diagnosis of a terminal illness. Underwriting The process of evaluating a loan application to determine the risk involved for the lender. This involves an analysis of the borrower's creditworthiness and the quality of the property itself. Unencumbered Where the property is owned outright and no mortgages or loans are secured against it. Valuation A simple check of the property in order to find out how much it is worth and whether it is suitable to secure a mortgage against. Valuation Fee The fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage. Variable Rate A type of interest rate the lender can charge. It goes up and down and your repayments change accordingly. Vendor The person selling the property.