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Business Loan Solutions - Commercial Mortgage Loan Strategies

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.

Two of the reasons (business plans and tax returns) will potentially impact all commercial borrowers. Many commercial mortgage loan officers will start their business loan review by stating some variation of "Can you show me your business plan?" and "We will need to see several years of tax returns."

Commercial projects are frequently too unique for traditional commercial banks. In these situations (even if a commercial borrower has favorable tax returns and an adequate business plan), it is not unusual for the business owner to be declined for a commercial mortgage loan by a traditional commercial lender.

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.

Commercial Mortgage Loan Disapprovals: (1) Limited Use Properties

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.

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 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 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 rejections: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when business loan underwriters look at tax returns, there are many other possibilities which produce a similar result.

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.

Commercial borrowers should seek out lenders using Stated Income commercial loans. However, this strategy will not work for all business loans since there is a maximum loan amount of $2-3 million for most Stated Income commercial mortgage loan programs.

Business Loan Disapprovals: (3) Cash Out Refinancing 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 rejected commercial real estate loan into an approved business loan: As noted above, there are other business financing options to consider. The borrower's objective is to use a commercial mortgage lender that will permit more cash out of a commercial property refinancing without significant restrictions on what can be done with it.

Business Loan Disapprovals: (4) Requirements for Collateral

Reason Number Four for business loan rejections: The bank will not approve a commercial mortgage loan without collateral, typically as a lien on the commercial borrower's personal residence or other 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 commercial mortgage rejections: A bank's loan officer or loan underwriter is not satisfied that the business plan provided by the commercial borrower supports the requested business 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) Shorten the business financing closing period. Business plan preparation is likely to take 1-2 months or more.

(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://articleaddict.com

About the author: Steve Bush will provide candid commercial financing advice. Sign up for a free series of Commercial Mortgage reports
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