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Second Position Commercial Loans Explained
Winston Rowe and Associates provides second position commercial loans, they are a national consulting firm with decades of expertise.
By: Winston Rowe and Associates
In the context of real estate, the "position" refers to the priority of the loan in the event of default and foreclosure.
Here's how it works:
First Position Loan: The first position loan is the primary mortgage on the commercial property. It has the highest priority in terms of repayment in the event of a foreclosure. This loan is typically the largest and carries lower risk for the lender.
Second Position Loan: The second position loan is a subordinate loan that is taken out in addition to the first position loan. It is junior in priority to the first mortgage. In the case of default and foreclosure, the second position lender will only receive repayment after the first position lender has been satisfied.
Key points about second position commercial loans:
Riskier for Lenders: Since second position loans are more subordinate, they are considered riskier for lenders. In the event of foreclosure, the second position lender may not recover the full amount if the proceeds from the sale of the property are not sufficient to cover both loans.
Higher Interest Rates: Due to the increased risk, second position loans typically have higher interest rates compared to first position loans. Borrowers may need to pay a premium for the additional financing.
Used for Additional Financing: Borrowers often seek second position loans when they need additional capital for improvements, expansions, or other purposes but do not want to refinance their existing first position loan.
It's important for borrowers to carefully consider the risks and costs associated with second position commercial loans.
Additionally, lenders will assess the overall risk profile of the borrower and property before approving such loans.
Always consult with financial and legal professionals when considering complex financing structures like second position loans.
Winston Rowe and Associates provides free advice and analysis for commercial real estate financing. You can contact us at 248-246-2243 or visit us online at this link to our website Winston Rowe and Associates. https://www.winstonrowe.com
Winston Rowe and Associates