As we approach the conclusion of the CCAA/SISP process, with the potential for KSV to honor the credit bids submitted by secured lenders, it's crucial to be prepared to act swiftly when an Exit opportunity arises.
The lenders may require financing for several reasons, including:
- Covering DIP expenses and other closing costs:
- DIP portion
- Legal/closing costs
- Land transfer tax (http://ccaa-sucks.liquidcms.ca/page/land-transfer-tax-calculator)
- Outstanding orders from the town (e.q. demolition costs)
- HST (??)
- Repaying RRSP funds
- Streamlining financing for medium to long-term property retention
- Funding renovations
- Repaying higher-cost borrowing
- Retaining title and control over the property
However, they may face several challenges:
- Lack of income to qualify for a mortgage or loan
- Property not in a rentable condition (this is a hard one to overcome)
- Limited lender options in certain locations
- High cost of available financing
Financing Options
- Home Equity Line of Credit (HELOC) If you have access to a HELOC to cover DIP financing and closing costs, and can manage cash flow using rental income, this would be ideal given the current prime rate of 6.70% (as of July 24, 2024) with expectations of further reductions.
- Mortgage Solutions
Scenario 1: No Income, Good Credit For applicants with no income but good to decent credit, specialized B lender options are available:
- Minimal documentation required
- Terms: 1 to 3 years or 5-year options
- Payments: Max. 40-year amortization or interest-only
- Fixed-rate mortgages starting at 7% for credit scores above 680
- Lender fee: 1.5% (3 or 5-year term), 2% (1 or 2-year term)
Constraints:
- Minimum borrowing: $150,000
- Ownership: Personal name or holding company
- Property condition: Rentable on the day of closing
- Appraisal and market rent assessment required
Scenario 2: Insufficient Income or Credit Issues For applicants with some income but insufficient amounts and / or credit issues, regular B lenders or alternative lenders are an option:
- Terms: 1 to 3 years
- Fixed-rate mortgages starting at 6.75% for credit scores above 680
- Lender fee: 1% of the mortgage amount
- Payments: Max. 30 to 35-year amortization
Constraints:
- Minimum borrowing: $100,000
- Ownership: Personal name or holding company
- Full application and extensive documentation required
- Self-employed applicants can qualify using 12 months of business bank statements
- Property condition: Rentable on the day of closing
- Appraisal and market rent assessment required
- Additional broker fee may apply
Scenario 3: Sufficient Income and Good Credit For applicants with sufficient income, good credit, and a property in good condition:
- Best-in-class interest rates
- Terms: 1 to 5 years most common
- Payments: Max. 30-year amortization
- Options: Variable or fixed-rate mortgage or new HELOC
Constraints:
- Minimum borrowing: $20,000 to $100,000 depending on the lender
- Ownership: Likely personal name but holding company may be acceptable
- Property condition: Excellent to good, rentable on the day of closing
- Full application and extensive documentation required
- Appraisal and market rent assessment required
If you have any questions or need further assistance, please do not hesitate to contact me.
Best regards,
Neil Joseph