Why would a borrower seek a loan at such a high interest rate unless they are poor credits risks?
The typical borrower in these situations is a property owner in need of cashing out a portion of their equity – be it for consolidation of debt or to take advantage of a business opportunity. In most cases, traditional financing won’t work for them for one of several reasons: 1) A short turnaround time is needed, which most institutional lenders can’t accommodate; 2) The property is unique and the lender cannot adequately appraise; 3) The borrower has recent poor credit, but has the income to service the loan. So, while in many cases the borrower does not have stellar credit (and this can be for many reasons), this does not necessarily make them a poor credit risk. Of more importance – is the equity there and does the borrower have the income to service the debt?
