[B] MY HUSBAND IS APPLYING FOR A COMMERCIAL LOAN. THE LOAN AMOUNT IS IN THE AMOUNT OF $254,000.00. WE OBVIOUSLY KNOW THAT WE NEED SOME FORM OF COLLATORAL. MY MOTHER AND HIS MOTHER ARE BOTH WILLING TO LET US USE BOTH OF THEIR HOMES AS COLLATORAL. BOTH HOMES ARE APPRAISED AROUND $70,000 - $80,000. WE HAVE $50,000. IN SAVINGS. IS THE COLLATORAL FOR BOTH HOMES EVEN POSSIBLE. WE HAVE NO EARTHLY IDEA. HOW WOULD THIS WORK? PLEASE HELP US OUT. WE ARE CLUELESS. MY CREDIT IS EXCELLENT AND MY HUSBAND HAS THE MANAGERIAL SKILLS IN RUNNING THE GYM. WE ALREADY HAVE OUR BUSINESS PLAN READY. EVERYONE KEEPS ON TELLING US THAT WE HAVE SOMETHING REALLY GOOD GOING FOR US HERE. PLEASE HELP!!

LAURA CANTU

Using the two homes as additional collateral is allowed, but there are a couple of issues with it.

1- There is an issue of “consideration”, which is a fancy way of saying that the homes being pledged are from a third party who has no direct benefit from the granting of the loan. I have never had this issue before “a relative that is not involved with the borrowing entity pledging a house”. I would probably have to check with someone about that situation myself.

2- Collateral is good, but even after accounting for 80% of the value of those homes, the lender will not be fully secured {if I did my math right}

3- The most important thing that a traditional commercial lender should be looking at is the repayment of the deal and not the collateral. Otherwise, you become a collateral lender that is looking at you to fail in order to grab the properties and get repaid.

4- Looking at repayment means that the lender is going to want to see the financial information of the business.

Other comments:

- You did not say if you are looking to buy an existing Gym or start one from scratch. If this is a completely new venture, then you have another hurdle in front of you. Banks will not lend to startups without a quality guarantee.

- It would be best if the family members willing to help would do it in the form of cash and not pledging the properties. My personal opinion is that since the houses are already at risk due to the lien, they might as well get the loan themselves and contribute the cash since residential financing can probably be obtained at better rate and terms.

- You might want to read up on the SBA programs available. I work in the corporate/commercial real estate side of a bank and I rarely deal with small business loans. I just reviewed a loan underwritten by one of my analysts a couple of weeks ago and that was the only SBA loan I have seen in at least four years. I had to call the small business underwriter manager to get a refresher.


Good luck