Business loan help

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Business loan help
Posted by: Dan Welch Jun 3 2004, 09:07 AM
I need to take about $50,000 of equity out of our business property to make repairs & improvements, pay bills, and pursue new projects. There is no mortgage and the property is well-situated and tax-assessed at around $400,000. Unfortunately, we have had quite a time of it getting any funding. We only need a “small” amount (say, 50K or so) which is only about 10% of equity–maybe even less in today’s current market. But the guarantor’s credit is poor, and we are just now coming into the black, so recent p&l’s are of no help. I had thought that with such a favorable loan-to-value ratio it would only be a matter of paying a higher rate based on the credit situation, but so far we haven’t been able to find anyone interested. Any avenues you know of that wouldn’t be stymied by these same issues would be welcome, but it seems like quite a cul-de-sac so far. We are just north of Boston and run a school and child care center.
Posted by: loanuniverse Jun 3 2004, 05:34 PM

There are good news and there are bad news.

First the bad news:

A mainstream lender can not justify the loan because there is no source of repayment other than liquidation of collateral. In owner occupied commercial real estate lending, your primary source of repayment should be the cash flow from operations of the business. From what I read this is not present. Your secondary source of repayment will be “recourse to guarantor and liquidation of collateral”. However, the mainstream lender does not want to foreclose. In fact, a mainstream lender hopes that the guarantor can cover the shortfall {this source of repayment is affected by the poor credit history”}. Due to these reasons, I see it as highly improbable that a mainstream lender will be willing to do the financing.

Now for the “good” news:

With that kind of loan-to-value, you will find a lender. It might not be the bank down the street, but you will find one that is willing to take the risk because if you can’t pay he will foreclose. The problem here will be that the rates will be higher than what you could get from a regular lender.

If I were in your position, I would:

1 Contact a loan broker {not really my favorite people in the world as some of them can be less than honest}, but see what kind of options they come back with.

2 Contact other types of lenders directly, and see what kind of options they can come up with.

Now that I think about it, you could probably even get a loan from an investor and maybe even under your personal name.

I wouldn’t worry so much about getting the loan with that kind of equity and loan-to-value, you are like a big whale in the water {actually more like an injured whale due to your financial problems}, and you will surely attract sharks. The trick here is to find the shark that will take the smallest bite. Hopefully, in a couple of years you can either pay it off or refinance at a better rate and terms.

Good luck, but make sure you run the numbers on all possible scenarios before you sign anything.

Posted by: The Fox Jun 10 2004, 03:23 PM
Going off of what ‘loanuniverse’ said, I would think it would be quite possible to get a business loan to you personally for the amount with a 1st position on the business property.

If you are “just now coming into the black” does that mean there are business losses that have piled up? Do or could you have interim financials that show you are now becoming profitable? (It’s interesting that this business would have no mortgage. Is there some debt to the principals involved?)

You mentioned “the guarantor” in the 3rd person. Does the bad credit belong to you or the other business owner(s)? This could have a major impact your ability to get the loan personally whereas may be tougher for the business.

Do you have income outside the business, or it that your job?

Like as was said, I would think you should be able to find a taker for this deal, but make sure you don’t fall to a predator! All the best.
Author: Commercial Loan Underwriter