If your borrower is looking for quick and easy financing, companies that offer daily-payment loans for small businesses might seem like a great option. These companies determine a borrower’s ability to pay based on their business’s daily cash flow. They offer small-balance mortgages for small businesses, and the average term of these loans tends to be between 6-12 months. They advertise a quick application process and easy access to cash.
While a daily-payment loan might appear very appealing and work for some small business owners, some people jump into these loans without making sure they can truly afford the payments. So, how should you handle these loans as a commercial mortgage broker?
First, you need to make sure that your borrower can actually afford the payments.
For example, $100 a day might seem affordable to your borrower at first. However, spread out over several months, that amounts to fairly hefty payments. Make sure that your borrower understands this.
Second, you need to present your borrower with other financing options.
Generally, borrowers who are interested in daily-payment loans cannot obtain traditional financing. It’s important to research other options and let your borrower know that there are other avenues for attaining a small-balance commercial mortgage.
If you are working with a borrower who has realized they cannot afford one of these loans, it’s time to turn to a small-balance commercial lender. A non-conforming lender will be more likely to listen to your borrower’s story than a bank and more willing to work with your borrower to find a solution. Generally, all you’ll need to submit a scenario is a loan summary explaining your borrower’s situation, a 1003 or commercial loan application and a recent credit report.
While daily-payment loans might seem like the simplest way to obtain funds for a small business, it’s important to urge your borrowers to proceed cautiously with them. These types of loans might work very well for your borrower, but it’s best to explore all of your borrower’s financing options and to make sure that they select the best fit.