Although there is really no “commercial subprime mortgage” sector like there is in residential, there are 3 types of commercial mortgages programs that are designed for borrowers with difficult situations.These loan programs include:1. Stated income commercial loans
2 . Commercial hard money
3. SBA 7a loans.Commercial Stated Income LoansCommercial stated Income loans were designed for businesses or investors that do not show enough income on their tax returns to qualify for traditional loans. For example restaurants, automotive repair or other high cash businesses are prime examples of business that often make enough money to support the mortgage debt, but owners often do not report all earned income on their taxes.The primary benefit of this program compared to other “subprime loans” is longer fixed period, with 20- 30 year amortizations schedules and high leverage (often up to 75% on refinances and even 90% loan to value on purchases).The negatives include high prepayment penalties and rates are often 2 -5% higher than typical bank financing (though it won’t be available to a borrower that didn’t show enough income on their tax returns to qualify).Commercial Hard MoneyCommercial hard money loans are the ultimate “commercial subprime” loans for investors and occasionally for business owners. Hard money lenders are really interested in properties equity or the properties ability to pay the lender back in case of default. Loan to values rarely exceed 65% and values are often further reduced by tough appraisals.The primary benefit of hard money is the speed in execution (3 weeks to close is not unusual) and lenders do not generally care about credit scores. The negatives with hard money include interest only rates in the 12-15% range with points in the 3-5% range.SBA 7a LoansIf hard money loans are the ultimate “subprime loans” for investors, the SBA 7a loans are the ultimate for business owners. Highlights include the ability to refinance up to 90% loan to value, credit scores as low as 500 are acceptable, and debt coverage ratios can be as low as a 1.1 – with the ability to use projections for future income.Common objection to the SBA 7a program include the floating rate and expensive guarantee fee that the SBA demands. Both of these negative characteristics can be eliminated though, for example there are banks that offer a 5 year fixed version with the ability to roll the guarantee fee into the rate.