At rebuildingsociety.com, we want to incentivise businesses to offer more and better security in support of their loan.
How does the Security Discount work?
A borrower can offer a wide variety of security to support their loan. We’ve assigned a nominal value to the different types of security, making some security ‘more valuable’ than others. For example a 1st charge on a property will be deemed a more valuable form of security than a company debenture, and as such they will be rewarded with a lower starting interest rate.
The more security added, the more the starting rate will be reduced, as the security added works in a cumulative way linked to the Loan to Value (LTV) ratio.
On the Primary Marketplace, starting interest rates are driven from the risk ratings we assign to each listed business. The starting maximum rate can be up to 5 percentage points lower than the standard maximum rates, which are currently:
- A+ = Max interest rate 11%
- A = Max interest rate 14%
- B = Max interest rate 17%
- C = Max interest rate 20%
Therefore a C rated loan will never have a maximum starting rate of less than 15%.
The security we can accept from a borrower is ranked in priority below.
- 1st Charge Commercial Property
- 1st Charge Non Residential Property
- 2nd Charge Commercial Property
- 2nd Charge Non Residential Property
- 1st Charge Residential Property
- Fixed Asset Debenture
- 2nd Charge Residential Property
- All Assets Fixed and Floating Debenture
- Corporate Guarantee
- Personal Guarantee Insurance
Therefore, depending on the LTV on the security, a 1st legal charge taken on a commercial property in support of a loan is ranked higher than a loan with an All Assets Debenture and may be achieve a lower maximum loan rate.
Similarly, based on the above a loan secured on a 1st charge non-residential property with an exceptional LTV will not achieve a better rate than a loan secured on a 1st commercial charge that also has an exceptional LTV, unless the former is accompanied by additional security.
Personal Guarantees do not qualify for a reduction in the interest rate as this is a mandatory requirement for all loans.