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What Private Mortgage Investors need to know about the difference between business and consumer loans.

Posted by Jim Emerson

Feb 28, 2023 6:46:17 PM



AMI Lenders finances business purpose loans and consumer loans, both guaranteed by real estate. So, we consider it a good idea to summarize the differences and commonalities between these two types of loans for the benefit of our clients. 

Users are different


As their name implies, business purpose loans are offered to companies and people in business to finance their business needs (whether it be working capital, machine acquisition, or physical refurbishment of installations, among others) and hopefully grow their business. On the other hand, consumer loans are offered to persons for their financing needs, including purchasing a home, an automobile, buying an appliance, or generally having a line of credit for other expenses such as tuition or covering medical expenses. 


At AMI lenders, being that we are a specialized private mortgage and hard money lender, we essentially only finance real estate-related investments through private hard money loans: on the business side, we fund investment in varied business initiatives such as updating commercial or production facilities, multi-property acquisitions for rental, fix and flip of homes, development of data centers, to name a few; on the consumer side, we basically finance home mortgages, home renovations, refinancing of an existing mortgage, and a few other owner-occupied residential reasons.


Financial conditions are different.


It should come as no surprise that business purpose loans and consumer loans will have different financial terms because the risk profile for each case is different.


  • Interest rates. Business-purpose loans, in general, will have a higher interest rate than consumer loans. On the other hand, you might find out that we can extend a business-purpose loan with a lower interest rate than a consumer loan at AMI Lenders. In most cases, this difference results from the loan duration: in a 1-year business purpose loan, we may be able to offer a lower rate given that in a consumer loan, we are required to fix the rate for 5 years. Additionally, in some cases, government programs guarantee homeownership mortgages that help reduce the interest rate by reducing the loan default risk. So, the interest rates will depend on the specifics of the loan under evaluation.
  • Loan duration. Most business purpose loans are granted for a few years (1 to 3 years, for example), whereas mortgages (consumer loans) are usually longer in duration (5, 10, 20, or 30 years).


The underwriting process is similar.

The application process for both business-purpose loans and consumer loans is similar. However, it should be clear that some differences will indeed apply.



In general:

  • A lender reviews income, existing debt, and credit history to determine an applicant's ability to repay the loan, whether it is a company or a person. The most standard way to carry out these reviews is to request documentation such as tax returns, financial statements, accounts receivable and payable for a business purpose loan, credit bureau reports, and applicant affidavits relating to their financial situation. 
  • At AMI Lenders, we always use real estate as collateral for the loan, so we will request an appraisal of the property to determine its value. 
  • We will generally not approve a consumer loan for business use unless it is related to a real estate investment business plan, and this approval lowers the loan default risk. 


In particular:


  • Regarding business purpose loans, AMI Lenders will evaluate an applicant's business plan. It will be important to specify and ascertain whether (a) the funds will be used to establish a new business or (b) the funds will be used to develop an existing business. In addition to evaluating the financial profile of a business, we may also review the business owner's personal credit history.  
  • Regarding consumer loans, we will assess the consumers:
  • Current or reasonably expected income or assets (other than the value of the dwelling and attached real property securing the loan).
  • Employment status, if the creditor relies on income from employment in determining the consumer's ability to repay (abbreviated as ATR).
  • Monthly mortgage loan payment.
  • Monthly payment for mortgage-related obligations (e.g., property taxes, homeowner's association and condominium fees, and certain ongoing expenses that are related to the mortgage loan and required by the creditor).
  • Monthly payments on simultaneous loans that are secured by the same property.
  • Current debt obligations, alimony, and child-support payments.
  • Monthly debt-to-income ratio or residual income.
  • Credit history.
  • The documentation requested for a business-purpose loan is generally much more extensive than for a consumer loan.


Approval process and philosophy

Given that all AMI Lenders' private money loans are real estate guaranteed, we approve business purpose loans based on a business's financial strength and its ability to earn a profit or, for consumer loans, when we are dealing with a credit-worthy applicant given that the property's value is sufficient to cover the loan amount.



If you are looking for a hard money business purpose loan or a residential loan ("una hipoteca con un prestamista privado" in Spanish) in the Houston area, look no further. At AMI Lenders, our advice as mortgage lenders is always geared toward financing the right investment property at the right price, for the right reasons, and with the appropriate loan terms.


For either a business or consumer real-estate guaranteed loan, consult with AMI Lenders. We are one of Houston's fastest hard money lenders regarding closings and will become your financial ally. Houston Borrowers will also have difficulty finding better rates for hard money loans or private loans than those we offer. 


We want our customers to succeed and take advantage of the financial opportunities provided by investing in real estate. Visit our website today and fill out an application for a loan backed by real estate. En AMI Lenders hablamos español.

Topics: houston, consumer loans, business loans, AMI Lenders


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