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Sometimes Borrowers Need a Fresh Start and Stabilization to Clean Up Past Problems
By Dan J. Harkey
Summary
Some fantastic people will work 15 hours a day to make sure that their vision is successful.
Real-life example: a successful closing
Consumers, businesses, or a combination of both can use debt consolidation loans. A funded loan typically reduces the borrower’s monthly payment obligations. Paying off accrued credit card debt and miscellaneous debt should enable the borrower to improve their credit rating and obtain a long-term bank loan.
Private money loans serve as a crucial bridge, alleviating the burden of multiple financial obligations. They guide borrowers to the other end, where they can navigate the institutional loan process and secure a long-term loan. This relief is not just a benefit; it’s a lifeline, offering a profound sense of peace of mind and a clear financial path.
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Article:
The borrower’s mortgage broker states:
My client runs a commercial bakery. It operates from 3 a.m. and delivers bakery goods to donut shops, grocery stores, and boutiques by 7 a.m. Its customer base is within a 10-mile radius of the bakery. They were forced to shut down during the COVID-19 fiasco, but had ongoing expenses, primarily fixed, since their employees were laid off. They hobbled along, accruing a debt of approximately $110,000 through bank loans, a government loan, and credit card debt.
Their business has improved dramatically, but with the hangover, accrued debt averaging 28% interest, they need some breathing room and a fresh start.
They need a second trust deed on their home to eliminate the high-interest rate accrued debt. A second trust deed is a second loan on a property that already has a first trust deed. In simpler terms, it’s a way to use the equity in their home to secure a loan. Their house is valued at $ 1,500,000 with a $650,000 first long-term trust deed. They request a $300,000 second trust deed, payable interest only, due in 36 months. The loan-to-value ratio is 63%, within the lender’s parameters.
Since the loan proceeds are primarily used to pay off business debt, the loan is not considered a consumer-purpose loan subject to Truth in Lending (TILA).
The lender responds:
We frequently encounter situations like this, where small entrepreneurs find themselves in a bind due to unforeseen circumstances such as the COVID-19 fiasco. It’s a stark reality that big corporations were considered systemically important and, therefore, exempt from shutdowns, while smaller players were left to fend for themselves. We understand your challenges and are here to help, offering not only our financial support but also our deep understanding and empathy.
We have reviewed the borrower’s application, background search, credit report, application, financial statement, and bakery financials. They are making a reasonable effort. We will provide sufficient funding to stabilize their business and personal lives.
A significant part of our due diligence is verifying that this loan is considered a business purpose rather than a consumer purpose loan. Business-purpose loans are made for 1 to 4 residential units of real property, where the loan proceeds are used primarily for business purposes. In contrast, a consumer-purpose loan is one in which the proceeds are used mainly for personal, family, or household purposes. ‘Primarily used for business’ is essential. This means that a portion of the loan proceeds, exceeding 50%, must be used for business purposes. A percentage of the loan proceeds (less than 50%) may be for consumer purposes.
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A consumer-purpose loan is one in which the proceeds are used primarily for personal, family, and household purposes. Our company does not make consumer-purpose loans because the regulatory environment is so strict against the lending company if a borrower defaults. We are committed to providing loans primarily used for business purposes.
Let’s get started. The process is designed to be straightforward, with an underwriting closing time of 14 business days. Underwriting is the process of evaluating the risk of lending to a particular borrower. We will guide you through each step to ensure a smooth process, making you feel at ease and confident in the process.
Dan Harkey
Educator & Private Money Lending Consultant
[email protected] 949 533 8315
www.danharkey.com
