Private Mortgages for Small Business 

Private mortgages are an excellent alternative for small business owners who can’t get more traditional loans when they need the money. Alternative lenders can supply cash to cover seasonal fluctuations in a business and even temporary cash flow interruptions. 

Mortgage Broker Store can supply these businesses with a private mortgage. They can walk you through all the requirements and the differences between these alternative and more traditional loans.

Private Mortgages vs. Bank Loans: Key Differences for Small Business Owners

A business owner must have all the information about private mortgages versus bank loans to make the right decision. Here are a few of the boxes an entrepreneur needs to check.

Credit Score Versus Equity

Big banks and credit unions have a formal approval process. This process requires several things you won’t find with a private loan, like an extensive financial history and a credit score of above 580, according to Equifax, Businesses often need to put together profit and loss statements and include personal financial details for banks. 

A private lender has more flexibility because they rely on equity. It uses the loan-to-value ratio, calculated by adding up all the proposed and existing mortgages and dividing it by the appraised property value. Private lenders will also accept contract work income and money from sole proprietorships. They base applications on equity, which is the amount of the property that’s been paid off. 

Their application process is more flexible, and businesses can get money faster with private mortgages.  

When Should Small Business Owners Consider a Private Mortgage?

Private lenders specialize in bad credit mortgages. Businesses that need quick access to money for expansions or to meet payroll during downtime should also consider one of these loans.

 Other business costs that can be covered by one of these products include: 

• A private mortgage can cover sudden increases in supply chain costs. A business’s cash flow can be disturbed when the price of supplies, inventory, and/or raw materials suddenly spikes.
• Sudden equipment breakdowns require quick financial responses to keep a business running. An enterprise’s heating, ventilating, and air conditioning needs to be up and running at all times. Retailers need reliable retail point-of-sale systems, and even conveyor belts that break down can cause production problems.

One of these alternative loans offers reflexible repayment terms that can fit into a business cycle. These are excellent ways for even seasonal businesses to get money when they need it. 

How Private Mortgages Can Help Stabilize Business Cash Flow

Most businesses rely on cash flow for their day-to-day operations. When that money is interrupted, an enterprise can have problems buying inventory, meeting payroll, and even paying rent or utilities.

Here are a few ways a private mortgage can stabilize that money and keep things going. 

Cutting Through Red Tape With Equity  

Stabilizing a cash flow means not getting bogged down with a lengthy application process when you need a private loan. Alternative lenders cut through the red tape that banks and credit unions impose. Private lenders focus on equity rather than asking for strict documentation, including profit and loss statements and balance sheets and demanding good credit scores. They use a Loan to Value (LTV) ratio that looks at the total of the loans requested and existing and appraised market value.  

Private Loans to Fill In Gaps  

One of these loans can also act like a bridge to keep a business up and running while it waits for payments. A private mortgage can also supply money for expansion without putting undue pressure on cash flow.

Using Private Mortgages to Fund Business Expansion

A private mortgage is more likely to accept a high-risk or unique market expansion application than a bank. 

Businesses in the Hospitality and Restaurant Industry

These types of businesses have a higher failure rate, but with good equity, they stand a better chance of getting a private mortgage. An alternative lender will likely offer the capital needed for operational renovation and expansion costs.

A private loan also works better for businesses in these two niche Industries since they can get the money quicker than a more traditional loan. That means they can get relief from seasonal cash flow interruptions much faster. 

Startups

A private lender is more willing to accept an application from a startup because the lending requirements aren’t as strict as those for a more traditional loan. Alternative lenders’ income requirements make it easier to get startup capital without extensive financial records. For example, these lenders accept contracts, and the profits from sole proprietorships that can fluctuate. 

Real estate developers who need money quickly to begin projects and buy land can also benefit from the streamlined application process for a private mortgage. Private lenders are also available to help contracting and construction companies with quick access to cash when they face gaps in their cash flow because of project delays. 

How to Qualify for a Private Mortgage

Equity built up in any property is one of the most critical factors for businesses looking to qualify for a private mortgage. Equity is the part of any property that’s paid off and is mortgage-free. These lenders focus on the loan-to-value (LTV) ratio, which comprises all the requested and existing mortgages divided by the property’s appraised value.

Most private lenders require an LTV of 75% for urban properties and 65% for rural ones. One effective strategy to optimize your LTV is to boost your business’s equity with accelerated mortgage payments or modest upgrades and renovations.

Securing a Private Mortgage with Bad Credit

Jonathan and Ron Alphonso can be reached at 416-499-2122 or by email at ron@powerofsalesontario.ca. They are real estate professionals who have been quoted in the Toronto Star and on Global News. Learn more about how they can help a business secure a private mortgage with bad credit at mortgagebrokerstore.com and powerofsalesontario.ca.