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From what @@Johny has said, the structure of your pitch would have a better chance if you could present it maintaining your existing employment for the purpose of the loan – even if you were later to quit your job assuming the business did well.
Once again, taking into account I have been out of this game for quite a while now, I would say any bank would be reluctant to approve this.
Assuming LVR calculations are based on what they were, then you have this situation:-
Property value $425,000., Current debt $380,000 = LVR around 90%
That’s based on current figures. If value increased to say $500,000 as suggested that changes to around $76%. hardly any wiggle room at all based on normal lending margins
Does anything above 80% still require mortgage insurance if done as a housing/house improvement loan? If so, I wouldn’t rate the chances of getting the proposed improvements through a mortgage insurer and I doubt spending $100K + would add an additional $100K in value.
Security was always much more strict in doing residential lending when I was doing it, so much less chance to play with LVR’s.
Lending on a commercial basis provides more leeway on one had, but then the LVR allowance is generally less, with an added % taken out for a contingency. The LVR was generally 70% with a further 20% contingency on the existing debt, meaning the final LVR worked out to be only around 56% of the property value and that’s after the initial debt is taken out, so well outside what would be standard security.
Quite a few if’s there in relation to property valuations, but on the basis we have here, the additional debt is effectively unsecured as far as a bank would be concerned. Paying $20,000 of the loan would make next to no difference in the LVR.
That’s why I struggle to see it being approved by any bank. I doubt either broker or bank will be too forthcoming with a great amount of advice. If they say something and the loan still isn’t approved, well we know what comes next.
Hope I am wrong, but that is my thinking.
I wonder also, if their is a way of designing the facilities in stages so to reduce your initial ask eg, Stage 1 could facilitate 1/3 of your projected kennels and cost $50K to complete.
I think that’s a good idea. As a starting point perhaps an option to use the $20,000 saved to start the ball rolling.
A very helpful staffer at my bank advised me to apply for a home improvement/renovation loan instead of a business loan – this helped her bank say yes – I am sure I would have been declined otherwise.
I bet you had enough equity in your house to cover it though?
From your banking experience, can you offer any ideas on what might make me more appealing to a lender, something that I can work on? If I paid the $20k savings off the home loan, would that help, for example?
If it was me, I would be looking at what Paul suggested and considering completing this in stages.
I can’t offer any comment at all about any sort of crowd funding as mentioned by Steve. Perhaps worth digging into.
Certainly I have known quite a few businesses over the years (restaurants mainly, where there can be quite an initial expense with setup but no landed asset and chattels that diminish in value quickly so are essentially worthless over time). Most of those were either family funded (an issue in itself) or private investors were involved.
You want to be careful with forecasts and business plans. From the sound of it, you will be giving up your job, but you won’t be earning the same amount from day 1, and forecasts have a terrible habit or having overestimated income and underestimated expenses.
If the only reliable source of income would be that of your partner, you would have trouble showing capacity to repay if this was assessed on a commitment level of around 35% of taxable income. (Providing I haven’t misunderstood and you will still be in your current job.)