Study: Millions of Small Business Owners Hold Toxic Mortgages
Millions of U.S. small business owners own "toxic" mortgages and are at risk of defaulting on their loans, according to the National Association for the Self-Employed. Additionally, many of these bad mortgages were targeted to small business owners who were prime and near-prime borrowers, but who are now facing unmanageable payments.
The news is startling because most of the nation's small businesses are run from a home office. Based on the association survey, about 3.7 million microbusinesses hold these bad mortgages.
"These small business owners will be at-risk for payment shock and default as their monthly mortgage payments skyrocket during the 'resets' that are scheduled to begin in fourth quarter 2008 and continue through 2012," said Samuel Bornstein, a business professor at Kean University.
"The current housing crisis is hurting entrepreneurs because they are unable to obtain important financing, such as home equity loans in order to start, operate and grow their businesses," said Kristie Darien, executive director of the NASE legislative office. "Addressing the housing crisis and credit crunch for the small business community must be the first steps taken to minimize our nation's economic decline."
Almost 34 percent of all self-employed business owners took out loans against their homes to get cash for personal or business expenses, according to the NASE, while 49 percent used various forms of debt like a mortgage, home equity or a credit card to start their businesses. Credit card debt was 28 percent of their total debt.
The NASE, based in Washington, conducted the study with the Kean University School of Business in Union, N.J. The results of the study were extrapolated based upon an estimated 16.2 million self-employed small business owners in the United States in 2007.
By Sharon McLoone |
November 26, 2008; 12:06 PM ET
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