Private/Hard Money for Debt Consolidation: Fresh Start, By Dan Harkey

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 but accrued debt of about $110,000 through bank loans, a government loan, and credit card debt.

Their business has improved dramatically, but with the hang-over 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. Their house is valued at $1,500,00 with a $650,000 first long-term first 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 parameters of the lender.

Since most of the proceeds will be used to pay off business debt, the loan is not considered a consumer-purpose loan subject to Trust 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 the big corporations were considered systemically important and, therefore, exempt from the shutdowns, while the smaller players were left to fend for themselves. We understand your challenges and are here to help, offering our understanding and support.

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 loan enough to stabilize their business and personal life.

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 loans made on 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 primarily for personal, family, and household purposes. 'Primarily used for business' is essential. That means that a portion of the loan proceeds, more than 50%, must be used for business purposes. A percentage of the loan proceeds (less than 50%) may be for consumer purposes.

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 defunds.

Let's go ahead and get started. The process is designed to be straightforward, and the underwriting closing time is 14 business days. The borrower must sign a letter of interest, some disclosure documents, and pay for an appraisal, but we will guide you through each step to ensure a smooth process.

Thank you,

Dan Harkey

Educator & Private Money Lending Consultant

949 533 8315 [email protected]

Visit www.danharkey.com