Although there is actually no "commercial subprime mortgage" sector like a home, there are three types of commercial mortgage programs designed for borrowers in difficult situations.
These loan plans include:
1. Statement of income commercial loans
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2. Business hard money
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3. SBA 7a loan.
Business income loan
Business-determined income loans are designed for companies or investors who do not have sufficient income on their tax returns to qualify for traditional loans. For example, restaurants, automated repairs, or other high-cash businesses are prime examples of business, often earning enough money to support mortgage debt, but owners often do not report taxes on all income.
Compared to other "subprime loans", the main benefits of the program are longer fixed periods, 20-30 year amortization schedules and high leverage [usually up to 75% refinancing, even 90% of loans and purchases] value].
Negative effects include high upfront fines, and rates are typically 2% to 5% higher than typical bank financing [although borrowers are unable to show sufficient income on tax returns to qualify].
Business hard money
Commercial hard currency loans are the ultimate "commercial subprime mortgage" for investors, and occasionally the loans of business owners. If it defaults, hard currency lenders are really interested in real estate interests or the ability of real estate to pay lenders. Loans to value rarely exceed 65%, and rigorous evaluation often further reduces value.
The main benefit of hard money is the speed of execution [not necessary for 3 weeks off], and lenders usually don't care about credit scores. The negative effects of hard money include interest rates in the 12-15% range and points in the 3-5% range.
SBA 7a loan
If a hard currency loan is the ultimate "subprime loan" for investors, the SBA 7a loan is final for the business owner. Highlights include the ability to refinance up to 90% of loan value, credit scores as low as 500 are acceptable, and debt coverage can be as low as 1.1 - the ability to use future income forecasts.
Common objections to the SBA 7a program include the floating interest rates claimed by the SBA and expensive guarantee fees. Both negative features can be eliminated. For example, some banks offer a five-year fixed version that can transfer guaranteed fees to rates.
Orignal From: Commercial subprime mortgage
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