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From the frying pan into the ... Business owners that "elected" to secure a Commercial Hard Money loan for their business are often surprise how quickly the time passes when they are expected to pay off that debt. There are of course only 2 real solutions to this. 1. Sell the property and pay off the loan or 2. Refinance the debt with another lender. The third option is to call your rich uncle and have him pay it off.

The game plan of course with most business owners is to give themselves some time to restructure their books, business, improve their credit score and essentially put themselves in a stronger position to get a conventional mortgage in a year or two. However, this may not be enough time or the problems were more difficult than expected. We see a lot of people that their primary issue is their personal credit score with the belief that they will increase it dramatically but at the end of the term there score has only moved up slightly. Regardless of the reason, the borrower may not be eligible for a typical conventional commercial mortgage.

One traditional option for business owners to get of the hard money loan is to go the SBA 7a loan route. This is because the 7a program allows credit scores as low as 520, loan to values as high as 90% on refinances and the borrower is allowed to use projections rather than just historical financials which may not show enough income to service the debt.

But this option has had several negatives that make it, almost as low of an option as the hard money loan to begin with. For example the rate normally floats over prime at around 1-2.75%, adjusting once per quarter - with no caps on the rate. In addition, the SBA normally requires a Guarantee Fee of 2.75% of 75% of the total loan amount. So in short, the benefit is that the borrower gets an option besides hard money and the rate is normally lower, depending on what Prime is than what they could get from another hard money lender.

However, not all SBA lenders are the same and it pays to be informed. For example there is a bank that offers the SBA 7a with a 5 year fixed rate at Prime + 1 and the bank absorbs the guarantee fee... As of this writing Prime is at 5.25% so most borrowers rate would be 6.25% fixed for 5 years and amortized over 25 years. This is one of the best commercial mortgages in the industry - regardless if the borrower is perfect or not.

So, if you're facing a ballooning hard money loan and you operate your business out of a building you own you may consider going the SBA 7a route. Regardless get out there and shop because there are more options out there than your local bank is aware of.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed and 90% non SBA financing, Commercial Equity Lines. 248 885-8797 or at SBA 7a Loan or Commercial Loan Brokers and Commercial Loan Brokers

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posted by fdwvsmr66464 @ 8:24 PM