Commercial Mortgage Loan Options - Business Loan Problems

Commercial borrowers are likely to be confused when they are turned down and will probably be unsure as to why it happened and what to do next. For each of the five major reasons that a bank might decline a commercial mortgage, a practical strategy is provided for converting the declined commercial mortgage loan into an approved business loan.

There are two reasons (tax returns and business plans) that potentially impact all business owners. Most commercial loan officers are likely to start the commercial mortgage review process by asking something like "Can you show me your business plan?" and "We will need to see three or four years of tax returns."

Commercial property loan requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for a business loan by a traditional commercial bank.

The reasons described do not involve unusual issues. It is likely that two or more of the reasons will be applicable for many commercial loan situations.

Business Loan Disapprovals: (1) Special Purpose Commercial Property

Reason Number One for business loan rejections: The lender does not make commercial mortgage loans for the type of business financing involved or imposes special covenants that make the commercial real estate loan difficult for the business owner. In a typical example, fewer commercial banks are offering business financing for bar and restaurant properties.

Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, campgrounds and churches that most traditional banks will not include in their business lending portfolio.

Strategy Number One for converting the declined commercial mortgage into an approved commercial real estate loan: For most business borrowers, there are prudent business loan options beyond traditional commercial bank choices.

There are results-oriented business lenders that will readily provide commercial real estate financing for special purpose commercial properties. The best commercial mortgage loan might only be available from a non-traditional business lender when traditional lenders won't offer the required business loan.

Commercial Mortgage Loan Disapprovals: (2) Tax Return Requirements

Reason Number Two for commercial mortgage loan and business loan disapprovals: Loan officers find a problem on an income tax return that disqualifies a commercial borrower under the bank's loan guidelines. This "problem" will typically be related to net income after business deductions, but when commercial loan officers review tax returns, there are many possibilities which will result in the same outcome.

Strategy Number Two for converting the rejected commercial real estate loan into an approved business loan: Commercial borrowers will never have this reason to worry about if they have applied for a "Stated Income" commercial mortgage loan. Very few traditional lenders use a Stated Income process (no income verification, no tax returns, no IRS Form 4506) for a commercial loan.

Business borrowers should look for lenders using Stated Income business loans. This approach, however, will not work for all commercial loans due to a prevailing maximum loan of $3 million for typical Stated Income commercial mortgage situations.

Business Loan Disapprovals: (3) Cash Out Refinancing Limitations

Reason Number Three for business loan rejections: When business refinances their commercial real estate loan and wants to get a substantial amount of cash out, it is common for a traditional commercial lender to limit what the funds are used for and to restrict the amount of cash to as little as $100,000. Even though the bank will provide the commercial loan, if they won't offer the amount of cash requested by the borrower, this is equivalent to a loan disapproval.

Strategy Number Three for converting the declined commercial mortgage into an approved commercial real estate loan: As mentioned above, there are other commercial lending options available. The commercial borrower's mission (and it is not impossible at all) is to use a commercial real estate lender that will allow them to get much larger amounts of cash out of a commercial refinancing without restrictions on what they do with it.

Business Loan Disapprovals: (4) Requirements for Collateral

Reason Number Four for commercial mortgage loan and business loan disapprovals: The bank will not make a commercial loan without sufficient collateral such as a lien on personal assets.

Strategy Number Four for converting the rejected commercial real estate loan into an approved business loan: Commercial mortgage borrowers should seek out business lenders that do not cross collateralize assets as a requirement for receiving a commercial loan. This will provide more options for the borrower and eliminate unnecessary and unwise connections between personal and commercial assets.

Commercial Mortgage Loan Disapprovals: (5) Required Business Plan

Reason Number Five for business loan rejections: A bank's loan underwriter or loan officer does not feel that the business plan submitted by the borrower supports the required commercial mortgage loan.

Strategy Number Five for converting the disapproved business loan into an approved commercial mortgage loan: Commercial borrowers should save money and avoid possible delays by working with a lender that does not require a business plan due to these primary advantages:

(A) Lower business financing costs by thousands of dollars. An average range for a business plan (prepared according to typical bank criteria) is $5,000 - $10,000.

(B) Decrease the closing time for a commercial mortgage by a month or more. The additional time required for business plan completion is likely to be at least a month .

(C) If the lender does not require a business plan, there is one less item standing between the commercial borrower and their approved commercial loan.

Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.

Article Source: http://www.myaddirectory.com

About Stephen A. Bush: Steve provides working capital management advice. Free AEX Commercial Mortgage and Working Capital reports

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