Individuals and private companies who offer commercial loans can thrive even in the toughest of times. But make no mistake: hard money lenders take on a fair amount of risk, and sometimes they need to enlist the help of an experienced lender solutions company to resolve issues with delinquent borrowers. Those problems can usually be avoided through diligence during the initial loan application process. Here are four red flags that hard money lenders should look out for with potential borrowers.
Inconsistent Personal Information
Warning signs can start at the very beginning of the application process. It’s important to look for basic inconsistencies, errors and omissions in the applicant’s initial profile. Little things, like incorrect Social Security numbers and addresses, can indicate deliberate attempts to provide false information. Verifications that were done quickly (the same day), or on weekends, may not be legitimate. And any documentation that should be notarized but isn’t should be rejected.
Weak Credit – Business and Personal
It’s not uncommon for those looking to launch a business for the first time to have a thin credit file. Credit history is certainly a predictor of future behavior, and it’s certainly a factor that plays heavily into the decision to offer a loan. For applicants who don’t have a business credit history, potential lenders need to review their personal credit history. It should not be assumed that there won’t be any overlap between the applicant’s personal obligations and their business finances.
The Business Plan – Or Lack Thereof
It seems obvious that potential borrowers who are looking for a business loan should have a plan. Attention should be paid to details: projected expenses, cash on hand, projected income, and how long it will take for the borrower to repay the loan need to be considered. If the borrower is looking to purchase commercial property, they should have a solid understanding of what the intended use will be, and the potential costs involved in owning that particular property. Without a business plan, the chances of a borrower defaulting on the loan are considerably higher.
Failure to Understand the Terms
Borrowers must have a clear understanding of the terms and conditions of the loan before receiving the money. It’s crucial to both parties that everything is thoroughly documented and explained – interest rates, payment dates, and actions that may be taken should the borrower fail to live up to the terms. While the borrower claiming ignorance after they’ve signed isn’t a compelling excuse, it can cause enormous difficulties for them if they can’t make the payments – and the lender will have to take action to rectify the situation. It’s important for lenders to be mindful of the borrower’s actions prior to signing the agreement. If there’s any doubt that the borrower doesn’t fully grasp what they’re taking on, it’s wise for the lender to step away from the deal.
At Total Lender Solutions, we pride ourselves on being a resource for the lending community. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
