After steadily declining since a postrecession peak in 2010, delinquency on commercial real estate loans climbed in 2020. Many commercial property owners have suffered along with the businesses that have had to close due to the pandemic. Vacant properties, slow pandemic business, and nonpaying tenants make it challenging to meet mortgage payments, especially if your cash reserves are depleted.
When this happens, property owners have a few options, including:
- Sell the property to recover equity.
- Catch up on payments to cure the default.
- Request forbearance from your lender.
- Come to a loan modification agreement with your lender.
- File for bankruptcy.
- Secure a commercial bailout loan.
For owners who want to keep the property and don’t want to do further damage to their credit, catching up on payments or getting a bailout loan are the best possible options. If you have found yourself in a financial bind and facing foreclosure, a commercial bailout loan could be a good way to help you get back on track.
What is a commercial bailout loan?
A commercial bailout loan is essentially a new loan that pays for your existing mortgage so you can keep the property. These are typically short-term loans designed to help you buy some time. The intent is to cover the gap while you get your finances in order, find new tenants, or sell the property. Unlike a traditional mortgage, a bailout loan is not based on your credit score or financial history but on your equity and the value of the property. The loan can be refinanced at a lower rate when you achieve more stability, but in the meantime, it gives you some breathing room to find solutions without worrying about foreclosure.
What are the pros and cons of commercial bailout loans?
Like any type of loan product, commercial bailout loans come with some pros and cons. On the plus side, securing this type of loan will help you:
- Get out of default or forbearance and wipe your slate clean.
- Limit damage to your credit score.
- Get more time to defer monthly payments.
- Get approved for a loan very quickly.
- Gain time to sell the property without being in financial distress.
However, commercial bailout loans typically come with higher interest rates and fees. For many people, the extra expense is worth it to buy some time, find solutions, and keep the property as a long-term investment. Of course, every situation is unique, so it’s up to you to decide if a short-term bailout loan is worth avoiding the risk of foreclosure and keeping your investment property.
When should you get a commercial bailout loan?
If you see the possibility of a foreclosure on the horizon, it’s time to start looking for solutions if you haven’t already. The sooner you start the process, the more options you will have and the better deal you’ll be able to get.
Addressing the situation as quickly as possible will also help limit any damage to your credit and financial history. If you are already in default, you’re also racking up fees, so the sooner you can get out of that situation, the more you will save.
How can Socotra Capital help?
Socotra Capital has offered a bailout program since the beginning of the pandemic. Even if you are in foreclosure or forbearance, we can bail out a property in five days or less. We build in interest reserves to ensure you have a loan in good standing until you either refinance the loan or sell the property. If you are at risk of losing a property, protect your investment with a commercial bailout loan to help you get through a tough time. The loan is based on your equity, not on your credit score or other financial information, so even if you have bad credit or a nontraditional income history, we can help.
You can learn more about private lending, the borrower requirements, and other details in The Borrower's Guide: Process, Preparedness, and Timeline.