When entering into loan contracts, it is essential to know the vernacular. Terms like aggregate loan limits and total exposure can sound like a foreign language to the average consumer. Aggregate means “a total or gross amount.” When you hear the term aggregate loans, it means the grand total of all your outstanding loan obligations.
The term aggregate loans can be used to describe a number of scenarios. It can mean total loans to one borrower in a single financial institution. It can denote all loans to an individual across several financial institutions. It can describe loans to multiple businesses sharing one or more principals. Understanding the context in which the term is used is important when seeking financing.
Your aggregate loan relationship can come in to play in several scenarios. You may be rejected for further financing because you will exceed the lender’s aggregate loan limit. For example, a lender may not lend more than $1 million to a solitary borrower. If you have multiple loans secured by a single piece of collateral, you will need to obtain insurance in the aggregate amount of the loans. This means if you obtain three $100,000 loans against a house, you must carry at least $300,000, the aggregate amount of the obligations. If you have a large loan relationship with at one bank with a high aggregate loan limit, you may find yourself subject to lower fees and interest rates based on the strength of that relationship.
When figuring out your aggregate loan balances, it is important to make the distinction between fixed loans and revolving loans. Fixed, or amortizing, loans should be calculated based on your outstanding principal balance. If an amortizing loan was booked at $200,000 and now carries a balance of $125,000, use the $125,000 to calculate the aggregate. If you have a $100,000 line of credit with a $10,000 balance, use the full $100,000 as all that money is available to you at any time. Based on the two aforementioned loan examples, the aggregate loan amount is $225,000.
Knowing your aggregate loan balance is crucial to maintaining your financial records. You must understand which loans are fixed and which are revolving. You must be aware of how much you have outstanding on your revolving lines at one time. You must also be aware of a bank’s aggregate loan limits when obtaining new financing. Contact your lending officer if you do not know your bank’s ceiling on loans to one borrower. Beyond that, you must be adept at managing and, above all, making the payments so your aggregate loan relationship stays current and in good standing.