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Commercial Mortgage Loan Options - Business Loan Problems |
By:
Stephen A. Bush |
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Commercial Mortgage Loan Options - Business Loan Problems
by Stephen A. Bush
Business borrowers will probably be confounded if their commercial mortgage application is turned down, and they may be unsure as to why it occurred and what to do about it. For each of five key possibilities that a commercial bank might reject a business loan, a practical approach is described for changing the declined commercial real estate loan into an approved commercial 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."
Business projects are occasionally too unique for business financing via a typical commercial bank. In these circumstances (even if a borrower has an acceptable business plan and tax returns), it is not unusual to be declined for a commercial loan by a traditional commercial lender.
The reasons provided below represent commonly-found issues. It is likely that several of the reasons will be relevant for most business loan scenarios.
Commercial Mortgage Loan Disapprovals: (1) Limited Use Properties
Reason Number One for commercial mortgage loan and business loan disapprovals: The commercial lender does not typically make commercial loans for the kind of business involved or imposes special conditions that make the commercial property loan impossible for the borrower. As one common example, fewer lenders are providing commercial real estate financing for restaurants and bars.
In a similar fashion, an auto service business is often given expensive and unnecessary environmental stipulations. There are many special purpose commercial properties such as campgrounds, churches, funeral homes and gas stations that most traditional lenders have eliminated from their commercial lending program.
Strategy Number One for converting the rejected commercial real estate loan into an approved business loan: For most commercial borrowers, there are viable commercial mortgage options beyond traditional commercial lender choices.
There are capable commercial lenders that are interested in business financing for special purpose properties. The best business loan might be available only from a non-traditional commercial lender when traditional banks won't make the requested commercial mortgage loan.
Business Loan Disapprovals: (2) Tax Returns Required
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 disapproved business loan into an approved commercial mortgage loan: Commercial loan borrowers will never have this reason to worry about if they are using "Stated Income" business financing. Very few traditional commercial lenders use the Stated Income approach (no tax returns, no IRS Form 4506, no income verification) for a commercial mortgage.
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.
Commercial Mortgage Rejections: (3) Cash Out Limitations
Reason Number Three for commercial mortgage rejections: When a business is refinancing their current commercial mortgage loan and wants to get a large amount of cash out for various uses, it is not unusual for the bank to restrict what the funds are used for and to limit the cash to amounts as small as $100,000. Even though the bank might make the business loan, if they won't provide the amount of cash needed by the commercial borrower, this is equivalent to declining the loan.
Strategy Number Three for converting the disapproved business loan into an approved commercial mortgage loan: As described above, there are other business lending options which should be considered. The business borrower's goal is to use a commercial lender that will allow larger amounts of cash out of a business refinancing without limitations on what they can do with the cash.
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.
Business Loan Disapprovals: (5) Requirements for a Business Plan
Reason Number Five for commercial mortgage loan and business loan disapprovals: A bank's loan officer determines that the business plan does not support the needed commercial loan.
Strategy Number Five for converting the declined commercial mortgage into an approved commercial real estate loan: Commercial borrowers will incur fewer business loan costs and delays with a commercial lender that does not require a business plan due to the following major benefits:
(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) Shorten the business financing closing period. Business plan preparation is likely to take 1-2 months or more.
(C) If a commercial lender does not need a formal business plan, there is one less condition to meet for an approved commercial mortgage.
Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.
Stephen Bush and AEX Commercial Financing provide business loan advice. Free Business Cash Advance and Commercial Mortgage reports Click here to get your own unique version of this article.
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Article Source: http://www.statssheet.com/articles/article53845.html |
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