Entrepreneurs can use private mortgages to manage their cash flow and boost their bottom line. These alternative products are used for different reasons, like debt consolidation and second mortgages. The money for one of these products can stabilize a startup’s available money.
Businesses can even tap into their equity to get quick access to funding.
Common Uses for Private Mortgages
A private mortgage can be used in a variety of different ways like:
Debt Consolidation
A private loan can consolidate high-interest-rate credit cards and other debts. One of the biggest reasons people use this financial tool is to consolidate different debts into one payment.
Debt consolidation through a private lender has a different focus than traditional loans.
Because private lenders have a more streamlined process, it’s essential to understand the value of your property through a proper home appraisal. That’s because they use the equity or portion you’ve paid off in the loan-to-value (LTV) ratio formula.
This is the ratio between the value of the mortgages on the application and that of the property. Here’s an example. If a house is worth $1,000,000 with a $500,000 first mortgage and has requested a $250,000 second mortgage, the LTV ratio on the second mortgage request is 75%. That’s the limit many private lenders allow.
Second Mortgages
As the name suggests, a second mortgage is about getting additional financing on a home or property that has a first mortgage already. The interest rates are typically higher because there’s a more significant risk. These are one specialty of private lenders since they use alternative criteria. Traditional banks rely on pay stubs, verifiable income over several years, and credit scores. A private lender will consider a second mortgage based on the equity that you have in a property and its location. The equity is the amount of the mortgage-free property you own.
To Supply the Money to Halt a Power of Sale or Foreclosure
A private mortgage can also be used to supply the money to stop either of these processes before an entrepreneur loses a physical business.
The application process is more streamlined than with a bank or credit union. Private lenders consider the equity built up in a property and the income from a sole proprietorship and contract work.
There are other reasons it’s an excellent choice for startups and people starting businesses.
Stabilized Cash Flow for Entrepreneurs
Entrepreneurs need a steady cash flow when the business is a startup and subject to sales ups and downs. Predictable money coming in allows for accurate forecasting and budgeting, which will reduce stress.
A private mortgage is an excellent way to pay suppliers on time and build trust.
If you’re an entrepreneur with a home-based business, you can get a private mortgage by tapping into your equity.
Flexibility in Cash Management
An entrepreneur owning a small business needs to keep an eye on how much money is coming in and going out of their business to meet daily needs. Getting a private mortgage can help supply an emergency fund.
Private mortgages have quicker approval processes than traditional banks. The approval process can take just a few days because there are fewer regulatory requirements. Private lenders are regulated under the Mortgage Brokerages, Lenders, and Administrators Act, 2006 (MBLAA).
Quick Access to Funding
Small businesses and entrepreneurs often face cash flow issues because clients don’t always pay on time. Some businesses experience an unexpected spike in demand for their goods and services and need quick money to cover the new requirements.
A private mortgage has a streamlined application process compared to more traditional banks. For example, the value of the property and the equity the client has count for more than the credit score. Traditional banks have stringent income requirements that include T4 slips.
Less Stringent Credit Requirements
There’s no hard and fast rule regarding credit scores for mortgage approval. However, Equifax reports that a score of 300 to 579 is considered poor. They also say a potential borrower must improve that score to get credit from traditional sources.
A private mortgage focuses on different metrics, including the equity you built up on the property rather than your credit score. Alternative lenders also accept self-employed income and part-time employment.
This type of alternative mortgage product is important to entrepreneurs for many reasons, including the customized loan terms. For example, an alternative lender can offer short-term options like a second mortgage. A small business can use one of these loans to finance a large renovation or expansion project.
Leverage Real Estate Equity for Business Stability
Real estate investors and companies that own their own properties can leverage their equity to get private mortgages. These loans can be financed more quickly than traditional ones, which means investors and other real estate entrepreneurs can take advantage of time-sensitive properties.
For example, private mortgages are good for investors who want to take advantage of distress sales, foreclosure sales, and development opportunities.
MortgageBrokerStore.com Solutions
Mortgage Broker Store can help entrepreneurs and small businesses manage their cash flow with various solutions. One of our priorities is loans that don’t meet traditional lending institution requirements. Unlike many competitors, we are both a direct private mortgage lender and a mortgage brokerage. Our team includes private lenders, brokers, and real estate agents. Let us help you prepare for and get a product that meets your requirements.
