notes that are discounted by a regulated lender is generally
challenging specially if government guaranteed programs are used. Aside
from meeting standard credit requirements, there are two major hurdles
to overcome, first to find a lender who is in principal willing to
finance a discounted note regardless of the regulations and second, to
assure that the regulations allow for the refinance of that note under
the specific circumstances that have led to the discount.
Many lenders, regardless of the regulations and merely based on their
lending policy, consider a discount as charge off which generally is
associated with a default. These lenders do not even entertain
refinancing discounted notes.
The regulations, at least when it comes to SBA financing, specifically
disqualifies small businesses who have caused prior losses to the
government and have delinquent federal debt including losses incurred
as a result of foreclosure or settlement of a loan balance.
Additionally, in order to refinance a discount, the small business
needs to have been current with the loan at least for the past year.
Many lenders require two or more years of current payment history.
In this case however, the lender had sold the note to a private equity
firm. These firms are looking for short-term gains and once acquiring
the note, are generally offering a discount as an incentive to the
hotel owner to refinance. Our challenge in this project was to
refinance a newer hotel who had stabilized only in 2012 yet taking
advantage of the negotiated discount.