In early 2024, Jerry W., owner of Oaks Road Tires in New Bern, North Carolina, had an exciting decision to make. He had been operating his tire shop and auto service center for over a decade in the same location, and now his landlord was offering to sell him the property. Feeling pressure to act quickly, Jerry secured financing with what turned out to be a predatory loan.
The loan in question, $200,000 over a 3-year term, required weekly payments of over $2000 (about $8,000 per month), which was much more than Jerry had been paying in rent. What’s more, the terms specified that the already-high 36% interest rate would jump to 46% after a single missed payment. The terms included a substantial prepayment penalty, making it difficult to refinance the debt with better terms, and effectively trapping Jerry in the loan.
Jerry purchased the property and continued operating his tire and service center, providing tire sales, auto repairs and state inspections to his community. But he struggled to make the required weekly payments, and did miss one payment, triggering the jump from 36% to 46% interest, which then made it harder to continue making the weekly payments. Adding to these challenges, Jerry was dealing with the loss of a close family member. When the lender initiated foreclosure proceedings, with all the attendant fees and penalties, Jerry feared he might lose not only his real estate, but his business altogether.
Jerry reached out to Self-Help Credit Union, and began working with Self-Help loan officer Jennifer Sherwin, who recognized the urgency of his situation: if the loan wasn’t refinanced quickly, the lender would foreclose and seize the real estate. Despite the complex refinancing process and the predatory loan's substantial prepayment penalties, Self-Help was able to offer Jerry a refinanced loan with an 8.12% interest rate and monthly payments around $3,500 – less than half what he had been paying.
This successful refinancing demonstrates the role that community development financial institutions like Self-Help play in the small business landscape. At Self-Help, when we underwrite a loan, we aim to ensure the debt will be manageable for the borrower. We stay focused on our mission: we want the borrower to ultimately pay off the loan and own the real estate outright because property ownership creates not only wealth for the individual borrower, but also stability and growth for communities. Through our work with Jerry, we were able to participate in preserving a valuable community resource and in protecting a business owner’s financial well-being.
Predatory loans exploit vulnerable borrowers, often pushing them into default under unjust terms which can lead to property foreclosure and seizure by the lender. At Self-Help, we aim to make sure the debt will be manageable for the borrower, so they retain ownership, which is key to stability and growth.
