Credit News

Pennsylvania Bad Credit Mortgage Lenders (PA)

#bad credit lenders

Pennsylvania Bad Credit Mortgage Lenders

Now is a good time to be a prospective home buyer in Pennsylvania, and a bad time to be a predatory lender. Pennsylvania has long been a good place to buy a home, with 71.3% of the housing market being home owners. Compared with the national average of 66.2%, one can see an impressive difference. That difference looks set to grow even wider, with new grants designed to fight predatory lending in the housing market and educate and protect home buyers. The average price of a home in Pennsylvania is significantly lower than the national average, tipping the low side of the scales at $97,000, while the national average is $119,600.

Now hundreds of thousands of families will have a great opportunity to find housing or keep the homes they have because of nearly $42 million in housing counseling grants announced recently by the commission of Housing and Urban Development.

The grants will help families in becoming first-time homeowners and remaining homeowners after the purchase. It s not all about home owners, as renters and homeless individuals and families will also benefit from the counseling offered by the grants. The Grants were awarded to 18 national and regional organizations and approximately 362 state and local housing counseling agencies.

The organizations will provide counseling services that will help meet the President’s goal of increasing minority homeownership by 5.5 million families by the end of the decade, said Alphonso Jackson. Under the Bush Administration, more families are receiving counseling services than ever before and more families are purchasing and keeping their homes. This program also helps educate and protect them from predatory lenders.

Out of the nearly $42 million in housing counseling grants, $2.5 million is specifically designated to combat predatory lending in the state, including awards to 46 state and local organizations. Grantees will assist unwary borrowers to avoid unreasonably high interest rates, inflated appraisals, unaffordable repayment terms and other conditions that can result in a loss of equity, increased debt, default and even foreclosure. This means that buying a home in Pennsylvania just got a whole lot safer.

The organizations that provide housing counseling services help people become or remain homeowners or find rental housing. Prospective borrowers now have an even greater safety net available to them through this funding. The agencies and organizations will be on the lookout for unscrupulous lending institutions and practices and will help educate the homebuyer so they can be on the lookout for themselves as well.

What is a High Risk Mortgage?

#high risk loans

What is a High Risk Mortgage?

A high risk mortgage is a mortgage loan that falls outside of the normal scope of risk that lenders are used to. When you are dealing with a high risk mortgage, everything else that has to do with the loan changes. Your lender will have different programs for you and different options within those programs. While many people have heard the term high risk mortgage, they may not be familiar with how they work. Here are a few things to keep in mind with high risk mortgages.

What Makes It High Risk?

When a mortgage is considered high risk, it is typically because of the person that is taking out the loan. Those that do not have good credit scores will typically result in a high risk mortgage being made. If your debt-to-income ratio is too high or you do not make a sufficient income for the loan you are requesting, it could be classified as a high risk mortgage. Stated income loans are also known as high risk loans because there is an inherent risk when you do not document everything during the application process. You are relying on someone to tell the truth when it comes to their income. This usually results in buyers overextending themselves. Any of these conditions could lead to the lender classifying the loan as high risk.

How It Affects You

When your mortgage is classified as high risk, it will affect you in a few different ways. When a bank takes on a high risk mortgage, they expect the rules of investment to apply. When you take on added risk, you want to be compensated for this risk. Therefore, when they take on a high risk mortgage, they will expect you to pay them more money in interest. Sometimes the interest rate can be quite a bit higher than normal as a result.

When you have a higher interest rate on your loan, this will affect you in the long term and short term as well. You will pay a much higher amount of interest over the course of your loan and you will have a higher loan payment in the short term. They will most likely require you to pay a bigger percentage of the loan upfront instead of allowing you to finance the whole thing.

You may also be subjected to different loan programs other than a 30 year fixed rate mortgage. You might have to agree to an interest only loan, balloon loan, or an adjustable rate mortgage in order to qualify. Therefore, the conditions will not always be ideal.

What Leads to High Risk Mortgages

There are a number of reasons that you could fall into the high risk category in the future. If you default on a loan, miss your monthly payments, or max out all of your lines of credit, lenders will tend to look at you as a high risk borrower in the future. Therefore, if you want to take advantage of normal interest rates and programs, you should safe guard your credit as tightly as possible.

What Is a Mortgage Bridge Loan?

#bridge loans

What Is a Mortgage Bridge Loan?

Time Frame

Bridge loans make the best financial sense when home sales are brisk. During sluggish economies, homes may take longer periods to sell. Using a bridge loan to close a new home purchase while carrying the existing mortgage can create a heavy burden for the borrower. For these reasons, financial advisers may recommend selling the original home, then obtaining a new mortgage.


Bridge loans differ according to costs, conditions and terms. Certain bridge loans require the payoff of the homeowner’s first mortgage at closing; others simply add more debt to the borrower’s name. Bridge loans differ in the calculation of interest. A monthly repayment schedule at a fixed interest rate affords more certainty than a variable rate. The lender may also require heavy front-end or back-end payments. Borrowers may qualify for unsecured bridge loans, according to “The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs.”

Specific terms, rather than open-ended bridge loans, also provide more certainty to borrowers. The lender’s home usually collateralizes the bridge loan. A bridge lender may also claim the new mortgage loan’s underwriting as a requirement for the bridge. Interest rates differ according to the institution and borrower credit. An existing mortgagor, depending on the lender’s payment history, may extend a new bridge loan.


Calculate the real cost of a bridge loan before agreeing to the terms. For example, origination costs, fees, closing costs and interest charges may whittle away equity of an existing home. Bridge loan fees can be costly. If a customer pays several thousand dollars in closing costs, then 1 to 4 percent of the loan’s value in origination fees, she has less money to buy a new home. Less-than-robust real estate markets add to the danger of real estate bridge loans. If the lender’s existing home takes more time to sell than the bridge loan’s original term — usually six months or more — the bridge loan costs continue to accrue. In the worst case, the borrower may lose her original home to the lender to pay off the bridge loan.


Bridge loans may assess penalties for early repayment. Read the lender contract carefully to determine any costs associated with the schedule of payments and terms. Consult your tax adviser about a bridge loan’s deductibility. Unsecured bridge loans aren’t mortgages. Consider the date of debt in both the bridge loan and new mortgage. Using the date of application of the mortgage loan may ease this issue if the bridge loan isn’t secured by home equity.


Alternatives may provide less-costly solutions to mortgage bridge loans. Offer a contingent sale agreement when bidding on a new home. Sellers may reject this proposal in a brisk home sales environment, but they may accept this type of agreement during sluggish markets. Borrowing funds from a retirement plan or money from family and friends may also provide a more attractive solution than a mortgage bridge loan.

Pinnacle Capital Mortgage

Experience. Integrity. Innovation.

Our powerful way of engaging the seller and making the winning bid, even against multiple and all cash offers.

At Pinnacle Capital Mortgage, we’re in the business of turning home ownership dreams into reality. As a provider of mortgages in the Bay Area, we work to present our clients with property loans tailored to their unique needs, and we’d love to add you to our list of satisfied customers.

Pinnacle Capital Mortgage is a local lender with a clear understanding of the Bay Area’s dynamic housing marketplace. Our veteran staff is intimately familiar with local conditions and able to sort out complex issues and provide excellent service.

Pinnacle was formed in 2008, in the wake of the financial crisis, and enjoys a clean balance sheet that is free of the legacy and buy-back issues still haunting many of the nation’s largest banks. Pinnacle is a direct lender with one of the industry’s highest scoring performance portfolios and offers clients a wide range of loan choices.

Our team welcome s the opportunity to assist you. We are committed to providing you with expert guidance and professional service as you move forward with the purchase of your new property.

Reverse Mortgage Calculator

#calculator mortgage

How Much Money Can You Qualify For On A Reverse Mortgage?

Use Our Calculator to Find Out!


Learn how to qualify for this amount by filling out our free consultation form and connecting with a trained loan officer today.

Age: Enter your age, or the age of the youngest borrower on the sliding scale. One person on title to the home must be at least 62 years of age to qualify for a reverse mortgage. With this type of loan, the older you are, the more money you will be able to access.

Home Value: Enter your home’s value on the sliding scale. You don’t need to know the exact amount, an estimated value will provide you with an idea of how much you may qualify for. Once you start on the reverse loan process, an appraisal will be done on your home.

Lien Amount: Enter the amount you still owe on your current mortgage. As with the previous figure, this can be an estimated value.

Once you enter your answers into the reverse mortgage calculator, you will be given a snapshot of how much cash you qualify for. To continue, click the “Get Qualified Today” button to fill out our more comprehensive form. The form is a no-obligation tool that your loan officer will use to better estimate how much you qualify for. Once complete, one of our experienced loan officers will contact you and provide you with more information regarding the loan process. You can review the basic steps of obtaining a reverse mortgage on the Process page.

The amount of money you receive from a reverse mortgage loan can be used however you would like. With this type of loan you are simply borrowing from your home’s equity. One major advantage of a reverse mortgage is that you will no longer need to make monthly mortgage payments. Staying current on taxes and insurance are your only financial obligations.

As far as receiving the cash, you have a few disbursement options. First, you can choose to have the amount you qualify for given in a lump sum. Another option is to set up a line of credit, which gives you flexibility as far as when and how you spend. You can also elect to receive monthly payments. Lastly, you can choose to receive the amount you borrow in any combination of the three options listed above.

10 Important Things To Consider When Getting A Mortgage Or Home Equity Loan

#getting a loan

10 Important Things To Consider When Getting A Mortgage Or Home Equity Loan

Finding the best home loan is not a job to be taken lightly. Here are 10 very important tips to consider before, during, and after the loan.

Looking For The Right Home Loan For You

  1. Mortgages are not commodities. If you think “it’s all about the rate”, you are going to be disappointed from the start. It’s really about finding a trusted partner help you navigate a complex transaction by offering honest advice and responsive support throughout the entire loan process.
  • Online is not the place to transact your biggest liability. Buy a music player, bid on sports equipment, order some books, but don’t do a mortgage over the internet. There are too many variables that arise throughout the process. This is not to say you should exclude the internet in your rate search, as there are reputable sites on the net which will help you find rates, calculate your potential loan, and provide other helpful information. I’m suggesting you shouldn’t work with an internet-only firm for your mortgage.
  • There are two types of mortgage lenders who advertise on the web and on the newspaper rate table. Ones you’ve heard of and ones you haven’t. Why do the major, well-known lenders generally quote higher rates? It could be they have higher cost structures. It could also be they are more reputable and provide a lot more service.
  • Generally, avoid interest-only loans. Unless you plan to move in a short period of time, or the loan is a short-term “bridge” or construction loan, avoid the “interest-only” loan. If you are only paying interest, you do not build up any ownership or equity in your home.
  • Are the fees reasonable?. Find out exactly what the loan will cost you. While some fees might not be avoidable, know that many fees are unnecessary “junk fees” or negotiable. Be sure to get a good faith estimate statement which shows your total expected fees. Some companies will include all the fees in the interest rate they quote you. Here are some fees to ask about:
    1. Application fee
  • Points (if you pay points, make sure your interest rate is reduced. A rule-of-thumb is to generally avoid paying any points if you plan to live in your home less than ten years)
  • Credit Evaluation
  • Loan Processing (these fees can be pretty arbitrary)
  • Appraisal Fee (cost to estimate the value of your home)
  • Title Search
  • Title Insurance (you have to pay to protect the lender. Always make sure the Title Insurance specifically protects you as well. It’s normal to pay more to protect your interests)
  • Documentation (these fees can be pretty arbitrary)
  • Underwriting (these fees can be pretty arbitrary)
  • Escrow Fee
  • Prepayment Penalty (the fee paid if you pay off your loan early)
  • The following fees are almost always “junk fees”: amortization schedule fee, trustee fee, financing statement fee, appraisal review fee, credit report review fee, document preparation fee, inspection fee, photo inspection fee, underwriting fee, warehousing fee, administrative fee, computer fee, courier fee, and overly high notary fees
  • When you ask about your interest rate, also ask about the APY (or Annual Percentage Rate) which is usually higher and a more accurate reflection of your true interest rate.

  • Generally, avoid adjustable rate loans. Adjustable rates can be attractive because the advertised rate is lower than a fixed rate. They generally allow you four payment options:
    1. minimum payment (NEVER make only a minimum payment. It won’t even cover the interest on your loan and can quickly lead to a situation where your home is worth less than your loan)
  • “interest only” payment (also not recommended. No money is going to pay down the loan or create home equity)
  • a fully amortized 15-year loan
  • a fully amortized 30-year loan
  • The later two are similar to traditional loans, except that your interest rate is adjustable.
    Here are three reasons to consider an adjustable rate.

    1. IF you know for certain interest rates can’t go up from current levels
  • the loan ceiling on the adjustable rate is below the current fixed rates
  • you plan to sell your home prior to the first rate adjustment

    Here are five questions to ask about your potential ARM rate. Adjustable rate loans often start with a “teaser rate”. This is an artificially low rate which will get adjusted higher at the first adjustment opportunity. If you do consider an adjustable rate, be sure to ask:

    1. what is the rate based upon (often a current T-bill or LIBOR rate plus an additional amount). Get complete details
  • what would be the rate today if you already had the loan and it adjusted to current levels
  • what is the floor (how low can the rate go from here)
  • what is the ceiling (what is the highest rate you would have to pay)
  • how often can the rate adjust.
  • Be sure you fully understand each of these parameters, and get them in writing. Note: if you can’t afford the loan ceiling and the fully amortized payment at that level, don’t accept the loan.

    Looking For The Right Home Loan For You

    1. The mortgage industry is unregulated. Mortgage brokers are not banks and don’t play by the same rules. There are countless stories of “bait and switch” with people being promised one thing and ending up with another at the closing table. You do not have to accept any last minute changes. While inconvenient, just walk away. (They are betting you won’t). Lets say you have found the rate and lender with which you wish to work. Here are twelve warning signs telling you to walk away from the loan. Any one is enough for you to terminate the loan right then and there.
      1. if the loan rep encourages you to borrow more than you need — walk away!
    2. if the loan rep prods you to overstate your income or understate your outstanding loans or expenses — walk away!
    3. if the loan rep tries to get you to agree to payments that you can’t afford — walk away!
    4. if the loan rep asks you to sign blank forms — walk away!
    5. if the loan rep won’t give you copies of every document you signed — walk away!
    6. if the loan rep fails to give you mandated disclosure documents — walk away!
    7. if the rep appears to pressure you — walk away!
    8. if the rep is unresponsive to your calls, is disorganized, repeatedly asks for the same documents, or is constantly blaming others for delays — walk away!
    9. if they try to sell you credit insurance or extra products you don’t want — walk away. (If you actually want the credit insurance, shop around to get the best rate)!
    10. if they try to make you do something that is against your better judgment — walk away!
    11. if they require you to deed your property to anyone — walk away!
    12. if the loan rep changes any of the terms of the loan at closing — run, don’t walk! Be aware that the further in the process you get — the more momentum builds — the tougher it is to back out. Dishonest lenders know this and are counting on it.
  • Generally, see if you can avoid paying for mortgage insurance. Some loans require mortgage insurance. Others will waive the insurance if you have a low enough debt-to-home equity ratio when you take out your loan. Most mortgage insurance protects the lender, not you.

  • Wisconsin VA Loan, VA Lending Limits, VA Mortgage Rates in WI

    #va loan

    Wisconsin VA Loans

    Secure a VA Mortgage in Wisconsin

    Veterans who live in the state of Wisconsin can qualify for a Wisconsin VA loan to fund their home purchase or refinance. VA loans are backed by the Department of Veteran Affairs (VA) and offer many benefits to veterans that traditional, conventional loans don t provide.

    What is the VA Loan?

    The VA loan program was created by the government as a way to reward or give back to the men and women who have served this nation by helping them transition into homeownership with a stable foundation and an affordable mortgage. The VA office does not fund the loans itself, though. All VA loans are provided by conventional mortgage lenders. But the backing that the VA offers gives lenders the ability to lower mortgage rates and offer better terms to veterans, making VA loans highly attractive.

    VA Loan Benefits in Wisconsin

    To explore the full range of benefits offered by a VA loan, contact a lender who has specialized in this loan type before. You can get started by filling out the form above. Some of the basic advantages of a VA loan are listed below.

    • VA loans can be taken out with no down payment attached.
    • You don t need to have high cash reserves on hand to purchase a home.
    • You don t need to pay for private mortgage insurance each month. The VA backing is sufficient.
    • You can roll the closing costs of the loan into the loan itself through a seller concession.
    • Credit and income requirements are fair and easy to meet.
    • There are no prepayment penalties attached.
    • You can select the loan term length that best meets your needs.

    VA Loan Requirements and Eligibility

    VA loans are available only to veterans, and while most veterans are able to purchase homes through the VA program, some are not. Speak with a VA loan specialist to determine the exact eligibility requirements you ll need to meet in order to qualify. A certificate of eligibility from the VA office is required. The basic qualification guidelines, however, are outlined below.

    • You must be an American citizen and a veteran of a branch of the US Armed Services.
    • You must have served for at least 90 consecutive days of active duty.
    • You must have been discharged under conditions other than dishonorable.
    • You should have a minimum credit score of 620.

    VA Refinance

    You can use a Wisconsin VA Streamline (IRRRL) refinance to replace your current mortgage with a refinance loan at a better rate. Many veterans are unaware that they can save significant money by pursuing the IRRRL refinance option. If interest rates have fallen lower than they were when you first took out your home loan, you can likely save significant money on your monthly payments and in reduced interest over the term length of your loan.

    The VA Cash-Out refinance is an option which enables eligible borrowers to refinance into a VA mortgage, as well as take out as much as 100% of their current home equity as cash. The funds may be spent on medical expenses, college tuition, home improvements, and more.

    Wisconsin VA Mortgage Rates

    As with any mortgage types, you must perform some research in order to determine the best possible mortgage rates available to you when taking out a VA loan. Mortgage rates are volatile. They differ depending on where you live, the lender you choose to work with, and the state of the mortgage market. Check with several local lenders, more than just one, to get a feel for where rates currently rest. Don t simply select the first lender you contact. Do some research. This is the only way to uncover the lowest mortgage rates.

    VA Lenders in Wisconsin

    The form above will put you in touch with up to four different lenders in your part of Wisconsin who are experts in the mortgage profession. This is where the rubber meets the road. It s time to actually connect with professional and find out what the VA loan can do for you. Don t forget to check up on VA loan limits in your area before you start searching for a home. If you need additional information, contact the Department of Veteran Affairs.

    Wisconsin Military Information

    Currently, Wisconsin maintains one active military facility. This facility is Fort McCoy, which is located east of Sparta. This military base is home to many veterans in the state of Wisconsin. If you re one of them, consider a VA loan to help you purchase your home.

    Why should I refinance my home loan? Mortgage Choice

    #refinance home loan

    Why refinance my home loan?

    Reasons to refinance

    Secure a better interest rate

    One of the key reasons home owners choose to refinance their loan is to secure a lower interest rate and reduce their monthly repayments. However, refinancing can come with some costs. so it’s essential to weigh up the savings of refinancing against the expense involved.

    Switch between variable/fixed rates

    If you’d prefer the certainty that repayments will stay the same for a period of time, you may wish to switch to a fixed rate. Conversely, you may decide you’d like to take advantage of a lower variable rate as you can accept the risk that rates may rise in future.

    Access  equity in your home

    Your home is likely to be one of your most valuable assets, and by harnessing home equity you have the opportunity to build additional wealth or simply achieve personal goals. Find out more about accessing your home’s equity .

    Consolidate  debt

    Refinancing  your home loan can provide an opportunity to streamline your debt, and potentially reduce the overall interest you’re paying on multiple debts through the process of ‘debt consolidation’. It means folding several high interest debts into one lower rate debt – which could be your home loan  – and may reduce your total monthly repayments.

    However, it’s important to note that debt consolidation can come with some downsides. It can turn a short term debt like a personal loan into a long term debt (your mortgage), and that means paying interest on the balance for a much longer period which could cost you more in the long run. For debt consolidation to be truly cost effective, you need to commit to making additional repayments to pay off the enlarged loan as quickly as possible.

    Access  additional home loan features

    You may wish to explore a loan that includes:

    • Flexible repayments

    Making extra repayments at no additional cost to help pay off the loan sooner.

  • Repayment holiday
    A break from repayments or reduced repayments to cover career changes or breaks e.g.  maternity leave.
  • Offset account
    Having a savings or transaction account linked to your loan. The balance of the linked account is deducted from, or offset against, the balance of your loan when the monthly interest charge is calculated.
  • Redraw facility
    Enabling you to withdraw any additional repayments you have made on your loan. Handy if you need cash in an emergency.
  • Flexible rate options
    Dividing your rate between fixed and variable components, or even making interest-only payments for a period.
  • Loan portability

    The ability to take your loan with you when you move from one home to another without the expense and hassle of arranging a new loan.

  • Mortgage Choice broker tip

    When To Refinance Your Mortgage

    #refinancing your home

    How to figure out when it makes sense to refinance your mortgage

    Should I refinance my mortgage?

    Here’s how to determine whether you will benefit by refinancing your mortgage.

    2 major types of refinances are:

    • Rate-and-term refinancing to save money. Typically, you refinance your remaining balance for a lower interest rate and a term you can afford. (The term is the number of years it will take to repay the loan.)
    • Cash-out refinancing, in which you take out a new mortgage for more than you owed. You take the difference in cash or you use it to pay off existing debt.

    Other reasons people refinance: to replace an adjustable-rate mortgage with a fixed-rate loan, to settle a divorce or to eliminate FHA mortgage insurance.

    Breaking even

    Mortgage closing costs can total thousands of dollars. To decide whether a refinance makes sense, calculate the break-even point — the time it will take for the mortgage refinance to pay for itself.

    Break-even point = Total closing costs / monthly savings

    Example: 30 months to break even = $3,000 in closing costs / $100 a month in savings

    If you plan to keep the house for less than the break-even time, you probably should stay in your current mortgage.

    Mind the term in rate-and-term

    The formula above doesn’t measure your total savings over the life of the new mortgage. A refinance can cost more money in the long run if you start your new loan with a 30-year term.


    Kris has been paying $998 a month for 10 years. If Kris doesn’t refinance, the payments will total $239,520 over the next 20 years.

    After refinancing, Kris could pay $697 a month to repay the new loan in 30 years, or $885 a month to pay it off in 20 years.

    $697 x 360 months = $250,920

    $885 x 240 months = $212,400

    In the example above, Kris borrowed $186,000 at 5%. 10 years later, Kris had a remaining balance of $146,000, and refinanced at 4%.

    Use Bankrate’s mortgage calculator to compare your own loan scenarios:

    • See what happens when you input different mortgage terms (in years or months).
    • Reveal the amortization schedule to see how much total interest you would pay.

    Good credit can save you thousands on your mortgage. Check your credit score for free at myBankrate .

    Cash-out refinances

    Cash-out refinances often are used to pay down debt. They have pros and cons.

    Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit card to your mortgage.

    But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.

    Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that’s added to the refinanced mortgage always was secured debt.

    What to Expect when Applying for a Commercial Mortgage Loan: Part 1

    #real estate loans

    What to Expect when Applying for a Commercial Mortgage Loan:

    Banks and Private Alternatives

    Part 1

    If you have never borrowed money for your business before, you may be in for a surprise. Whether you want to borrow working capital to expand your business or leverage equity in a commercial real estate venture, you will soon find out the commercial loan process is very different from the more common home mortgage process. Commercial loans, unlike the vast majority of residential mortgages, are not ultimately backed by a governmental entity such as Fannie Mae. Consequently, most commercial lenders are risk-averse; they charge higher interests rate than on a comparable home loan. Some lenders go a step further, scrutinizing the borrower’s business as well as the commercial property that will serve as collateral for the loan. This means that the business borrower should have different expectations when applying for a loan against his commercial property than he would have for a loan secured by his or her primary residence.

    Following is a list of questions the borrower should ask himself and the lender before applying for a commercial loan.

    1. How am I going to meet the loan repayment terms?

    Typically, bank loans require the borrower to repay his or her entire business loan much earlier than its stated due date. Banks do this by requiring most of their loans to include a balloon repayment. This means the borrower will pay interest and principal on his 30-year mortgage at the stated interest rate for the first few years (generally 3, 5 or 10 years) and then repay the entire balance in one balloon payment.

    Many borrowers do not save enough in such a short time frame, so they must either re-qualify for their loan or refinance the loan at the end of the balloon term. If the business happens to have any cash-flow problems in the years immediately preceding the balloon term, the lender may require a higher interest rate, or the borrower may not qualify for a loan at all. If this happens, the borrower runs the risk of being turned down for financing altogether and the property may be in jeopardy of foreclosure.

    A balloon loan has other risks as well. If the borrower’s business is in a “risky” industry at the time the balloon is due (think of the oil and gas bust in the 1980s or the telecom implosion of the 2000s), the lender may back out of all refinancing for the enterprise. Alternatively, a lender simply may decide its loan portfolio has too many loans in a given industry, so he will deny future refinancing within that trade.

    Non-bank lenders generally offer less stringent credit requirements for commercial loans. Some non-bank lenders will make long-term commercial loans without requiring the early balloon repayment. These loans, which may carry a slightly higher interest rate, work like a typical home loan. They allow a steady repayment over twenty or thirty years. It is often worth paying a one- or two-point higher interest rate for a fixed-term loan in order to ensure the security of a long-term loan commitment.

    2. How much can or should I borrow?

    Most bank loans prohibit second mortgages, so the borrower should go into the loan process intending to borrow enough to meet current business needs, or enough to sufficiently leverage real estate investments. For a traditional acquisition loan in which the borrower is buying a new property, banks usually require a down payment of 20-25%. So for a $600,000 acquisition, the borrower will need to come up with $120,000-$150,000 for the down payment.

    Some non-traditional loans will allow the borrower to make a smaller down payment, maximizing the loan-to-value (LTV) at 85-90%. Such loans are generally not bank loans, but are offered by direct commercial lenders or pools of commercial investors. If the customer wants to borrow the maximum amount possible, the interest rate on such loans may be a point or two higher than typical bank loans. Before deciding how much to borrow, potential borrowers should:

    • Evaluate how much cash they are likely to need
    • Analyze their ability to repay the loan as it is structured

    Research has consistently shown that the number one reason behind the failures of most small businesses is the lack of adequate capital to meet cash-flow needs. Because of this it may actually be safer for a small business to leave a larger cushion against unforeseen events by borrowing more money at the slightly higher rate.

    The amount of the loan requested has an effect on which commercial lenders will fund the loan. Small businesses borrowing less than $2,000,000 will visit a different pool of potential lenders than those seeking loans of over $5 million. Small business loans are generally made by direct commercial lenders (easily located by internet searches) or by small local banks. Larger loans are generally made by regional banks, and very large loans are made by mega-banks or Wall Street lenders.