Commercial Lending and Stated Income

Commercial lending is a great opportunity for anyone that wants to start a business or expand his or her current small business. However, if you fall into the category of self-employed, you may be asking yourself, what the world of commercial lending has to offer you?

Commercial lending, much like standard lending, requires above average credit as well as proof of income and employment. Typically, proof income and employment are established by providing one’s taxes, W2’s or pay stubs, financial statements, bank records and so on. Yet, when you are self-employed and you can produce these above-mentioned documents, it sometimes not enough if you do not have a third party who can verify your employment or set income.

In fact, most lenders look at small business owners or self-employed individuals as high-risk for this very reason. Besides being labeled high-risk, most of these borrowers are deemed ineligible for commercial financing. Of course, you might think this where hard money and private money lenders can come to the recuse. But, often times, without a clear verification of employment, these lenders are also a little wary of taking that risk. So, at this point, you are probably wondering what you can do?

Well, thankfully, there are specific stated-income programs for commercial financing. These particular loans are often referred to as “No Doc” loans. With “No Doc” loans, small business owners and individuals who are self-employed have the opportunity to provide an alternative proof of income. Alternative proof of income and employment is not really so much you, the borrower, providing more information per se; instead, your lender will use different information to determine if you are in a good position to secure commercial financing. For example, if you are a small business owner, you will more than likely be required to provide multiple years’ worth of profit and loss statements for your business.

Determining Eligibility

In addition to providing detailed tax information and/or several years’ worth of financial statements, you absolutely need exceptional credit if you are self-employed. By having exceptional or excellent credit, lenders that offer specific income-stated programs for commercial financing will be more inclined to believe you are capable of repaying your loan (establishing your creditworthiness). If all goes well, you should be able to secure that loan but you should keep in mind that eligibility is a two-way street. In other words, you need to make sure your lender and broker are reputable, especially when dealing with income-stated programs, as many brokers have been guilty of unscrupulous uses of these particular loans.

Risk Less

Ultimately, these “No Doc” loans are risky business for everyone involved; thus, you should not be too surprised to that these particular loans tend to come with more fees and costs than traditional commercial financing. If you are not interested in covering additional costs, then you should definitely take the time to consider the pros and the cons of securing this particular financing. In the end, only you know if a “NO Doc” loan will help your business or not.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.