As a small business owner in Australia, there may come a time when you need access to additional funding to help you grow or keep your business afloat. One potential solution to consider is a second mortgage business loan. In this guide, we will explore what a second mortgage is, how it can be used, the second mortgage loan process and what you need to know to secure one for your business.
What is a Second Mortgage?
A secured second mortgage is a lending solution using property equity when there is already a mortgage in place. The existing mortgage is referred to as a first mortgage. Second mortgage loans are typically fixed rate loans offered by private lenders with loan terms as short as one month. In addition to term loans, second mortgages can be used as extra security by mainstream lenders so business owners can access more credit for their business.
How Can a Second Mortgage be Used?
A second mortgage can be used for a variety of purposes, including:
- Working capital
- Payout tax debt
- Debt consolidation
- Bridging finance
- Refinance existing second mortgages
- Partner buyouts
- Business acquisitions
- Funding plant and equipment
- Cashing out equity with a 2nd mortgage equity loan.
Second Mortgage Lenders and Bad Credit
Second mortgage lenders don’t credit score in their application process so they’re fine for applicants with bad credit, those that have been declined by banks and other lenders, or who have outstanding tax debt. Rates are interest only with the option to be capitalized to the loan for bad credit (which means no repayments for up to 12 months).
Second Mortgages as a Short-Term Strategy
Because of the higher rates associated with second mortgages, they should be a short-term strategy. Business owners should seek to refinance a second mortgage as quickly as practical from second mortgage lenders.
The Application Process for a Second Mortgage
The lender’s application loan process is focused on understanding the borrower’s asset and liability position. The lender will wish to ensure there is sufficient equity in the property to cover the loan and that the applicant has an appropriate exit strategy – such as refinancing the second mortgage loan. Before we assist a business secure a second mortgage we work with them to determine their exit strategy is viable and is likely to lead to a successful outcome and minimise the chance of default.
Costs Associated with Second Mortgages
Other costs applicants should be aware of is they will need to pay for a commercial valuation over their security property and the cost of a solicitor who will certify they understand their loan contract and verify their identity. Like other business loans, second mortgage loans usually have an establishment fee and there will be fees listed in your loan contract in the event of default.
Choosing a Second Mortgage Lender
Not all private lenders are created equal, and some second mortgage lenders seem to have an opportunistic approach to charging default interest rates and penalty fees for what most would think are minor issues. It’s important business owners work with a lender who has a track record of acting fairly. We strongly recommend business owners work with a specialist finance expert who has experience with private lenders and second mortgages in particular and help them with a suitable exit strategy. darkhorsefinancial.com.au has helped many business owners to get the right outcome with their second mortgage.
Work with an expert to obtain a second mortgage
A second mortgage can be a useful tool for Australian business owners who need access to additional funding. However, it’s important to understand the costs and risks associated with a second mortgage loan. By working with a specialist finance expert and choosing a reputable lender, you can ensure that you get the funding you need while protecting your business’s financial future.
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