Friday 14 January, 2022
When applying for a loan, you’ll hear terms such as “borrowing power”, “borrowing capacity”, and “assessment rate”. But how do they relate? What do they mean? We’ll break it down for you in a simple equation.
Your current financial situation + assessment rate = Borrowing power
Borrowing power > loan amount = Loan approval!
Simply put, when you apply for a loan – the lender will use an assessment rate of your current financial situation to determine your borrowing power.
The lender will decide whether to approve your loan based on their findings in this process.
Your financial situation is assessed the following criteria:
The assessment rate is the level of risk that a lender is willing to assume if they provide you with a loan.
The lender will consider the amount you want to borrow and assess whether you can realistically achieve that in your current circumstances.
Borrowing power, or borrowing capacity, is the amount of money that a lender will allow you to borrow. This is based on your current financial situation and the lender’s assessment rate.
The same principle applies. The lender will assess your current financial situation and assessment rate to determine your borrowing power.
For business loans, lenders will determine your financial situation by assessing criteria such as:
You’ll also be expected to supply plans, specifications, council approvals and fixed price building contracts.
Different lenders have different assessment rates, so some are more willing to take on more risk for a loan than others.
Finance brokers are helpful in this process, as we act as your liaison between lenders and you. With our vast experience in finance and established connections, we can help you find a lender who is favourable to your situation.
Finance Brokers Tasmania = Loan approval!*
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