Commercial Loans – Bad Credit

Business loans for borrowers with bad credit are restricted to a few options. Often borrowers find themselves in very difficult positions as many traditional and nontraditional banks will not even look at their loan request if their score is below a 650.

Many times the borrower’s credit score is unfairly reported as many commercial borrowers have great credit score, but because they have multiple home loans, multiple lines, etc . their score is erroneously brought down even though they have never been past due on a single transaction. We come across it all the time.

Commercial Loans - Bad Credit

Options for debtor with bad credit are, generally limited to 3 options – SBA commercial loans, commercial hard money and “story” lenders.

SBA commercial loans carry a lot of misperception by borrowers. The greatest and most important so that you can know is that NOT all SMALL BUSINESS ADMINISTRATION lenders are the same. And more to the point, the SBA never actually loans any of its own money. They will only guarantee banks that they will be paid back if the borrower defaults. So the point is that the banks make up almost all of the underwriting criteria. There is absolutely no minimum credit rating that the SBA requires. For example we work with a bank away of New Jersey that will often fund SBA commercial loans with borrowers credit score in the low 500’s.

Commercial hard money is probable the first thought for many when considering a commercial loan with a borrower that has bad credit. Most hard money commercial lenders are enthusiastic about the properties equity and or its cash flow and the borrower’s credit score is often just an afterthought.

Commercial Hard money lenders want to see at least 40% equity in the property or a 60% loan to value in order for them to seriously consider funding the offer. Speed and overall flexibility with underwriting are the highlights of economic hard money. The expense is the downside. Borrowers should be prepared to pay 3-6% points and possess a rate around 13-16%.

“Story lenders” are banks that are ready to listen to the borrower’s story about their difficult situation.

They are often willing to ignore many difficult situations such as bad credit, weak business cash flow, high loan to values, and so on. Although there are few banks that would describe themselves as a tale lender the borrower should look locally or work with professionals in the business that may know of a few banking institutions that can get over their difficulties.

For example , we recently closed a loan that was in foreclosure by refinancing it with another bank that was more willing to listen to the borrower than their existing bank. Their situation was that their loan had ballooned and despite their best efforts they could not get their existing bank to refinance the loan or find another bank that would either. After a year of searching they couldn’t get it done and the existing bank put more pressure on them by phoning the “note” (forced foreclosure). We knew of a bank out of California that could be interested, provided the borrower refinance some of their unsecured are actually into the proposed loan to increase the borrowers over all cash flow.

So, borrowers with bad credit seeking commercial financial loans should be prepared for some “brain damage” as they will have to find a viable source after hearing many “no’s”.

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