Occasionally while running a business, unexpected financial issues arise which creates a cash flow crisis. The cash crunch can lead to your commercial property facing foreclosure. There may be options to refinance the loan, and save your property, even if your liquidity is tight.
Option 1) A bridge loan, this serves as a bridge, or a band aid, to give you more time for the company to turn the financial picture around. If your current loan balance is considerable lower than the current value of the property, there may be an opportunity for a bridge lender to come in, pay off the loan in default and give you the relief you need.
Most bridge lenders will loan 60% to 65% of the appraised property value. The term of the bridge loan is usually 12 to 24 months, with interest only payments, at a range often of 12% to 14%, 3 to 4 lender origination points, with no pre payment penalties after 6 months. This is a pricey solution, but bridge loans can come in handy if serious issues like IRS tax liens or judgments on your credit report need to be paid off before needed repairs to your credit can start.
Depending on the specifics of the commercial real estate loan, your current lender may be open to a discounted loan payoff. This is a discussion the interested bridge lender could have with the existing commercial property lender to gauge their interest.
A second option exists if your company has significant equipment assets owned free and clear. As an example, a towing company had several high end tow trucks they owned free and clear. The equipment finance company secured the loan offered by having a UCC filing against 6 of the trucks. The funds provided paid off past due property taxes, a federal tax lien, and a high interest rate merchant finance balance, along with bringing their mortgage current. This equipment finance approach saved the property from foreclosure.
Before you lose your commercial property to foreclosure, consider the above options. Should you have any questions on this topic, please email me at email@example.com or tweet me @ralphspodcast.
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