Growth Funding Group LLC is a direct lender specializing in commercial second position mortgage loans. This guide provides a detailed overview of second lien financing, its benefits, and the key factors to consider when securing this type of funding.
What Is a Commercial Second Lien Loan?
A commercial second lien loan, also known as a second mortgage or junior lien, is a type of secured debt that is subordinate to a primary or first mortgage. This means that in the event of a foreclosure, the first lien holder gets paid back first from the proceeds of the property sale. Only after the first lender is fully satisfied does the second lien holder receive any repayment.
This subordinated position makes a second lien loan riskier for lenders, which is why they often come with a higher interest rate and stricter terms than a first mortgage. Despite the higher risk, they are a powerful tool for commercial real estate investors and business owners who need to access the equity in their property without refinancing their existing, low-interest first mortgage.
Second lien loans are commonly used for:
- Capital improvements and property renovations.
- Business expansion or working capital needs.
- Debt consolidation to pay off higher-interest obligations.
- Emergency funding to seize time-sensitive opportunities.
Key Characteristics of Second Position Lien Loans
Understanding the nuances of second lien financing is crucial for borrowers. Here are the main characteristics:
- Subordinated Position: The loan is secured by a second deed of trust, placing it in a junior position to the existing first mortgage.
- Higher Interest Rates: Due to the increased risk for the lender, interest rates on second position loans are typically higher than those on a first mortgage. A hard money second position loan, in particular, will have a higher rate due to the expedited nature and reliance on collateral.
- Combined Loan-to-Value (CLTV): Lenders evaluate the loan's risk using the combined loan-to-value (CLTV) ratio. This metric takes into account both the first and second mortgage balances against the property's value. For example, if a property is worth $1,000,000 and has a first mortgage of $500,000, and you're seeking a second lien loan of $150,000, the CLTV would be ($500,000 + $150,000) / $1,000,000, or 65%.
- Maximum CLTV Limits: Very few companies offer a CLTV higher than 65%, as a high CLTV increases the lender's exposure to risk. Lenders are more comfortable with lower CLTVs, as they provide a larger buffer against a decline in property value.
The Second Lien Lending Landscape: Why Direct Lenders Are Crucial
The market for commercial second lien loans can be challenging to navigate. Traditional banks and institutional lenders often shy away from this type of financing due to its subordinated nature and perceived risk. This is where private lenders and direct lenders like Growth Funding Group come in.
Many firms listed as "hard money lenders" or providers of 2nd lien commercial loans do not actively fund these specific products, leading to frustration for borrowers. A true direct lender for second position mortgage loans, like Growth Funding Group LLC, underwrites and funds the loans themselves, which results in a more efficient and reliable process.
Why Choose a Direct Lender for Emergency Funding?
When a time-sensitive opportunity or an unexpected expense arises, speed is of the essence. Traditional lending institutions can have a lengthy closing process, with commercial loans often taking 45 days or more to close. This can cause you to miss out on a critical opportunity or worsen a financial situation.
Growth Funding Group LLC is a direct lender for commercial second position mortgage loans that understands the need for speed. We offer expedited second position lien loans, with a typical closing time of just 10-15 business days. This is possible because we streamline our process, offering funding with no appraisal requirement for these emergency funding needs. This accelerated timeline is a significant advantage for borrowers seeking quick access to capital.
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