Many business borrowers do not prepare adequately for the commercial mortgage business loan problems that are common in most business financing scenarios. By anticipating typical commercial loan difficulties, business owners are more likely to avoid potentially disastrous business finance consequences.
With rapidly deteriorating financing for residential investment property, overcoming business loan and commercial mortgage problems is even more important. This summary provides an introduction to four critical commercial loan factors and should assist commercial borrowers to better anticipate key business financing difficulties.
It is not unusual to find that business investment lenders and business loan brokers are not as forward-looking about business financing and investing difficulties as most borrowers would expect, and I have published another article about commercial lenders to avoid. The focus here is on four typical commercial mortgage loan and SBA business loan difficulties often overlooked by commercial lenders and borrowers.
Commercial borrowers should be prepared for commercial loan scenarios that involve unexpected business financing problems. With business financing there are several key commercial mortgage problems which should be avoided. Business loan problems are more serious and prevalent than many borrowers would imagine.
Some of these commercial mortgage business loan difficulties might be unavoidable, but in most cases these business financing and SBA loan challenges can be successfully overcome. Commercial borrowers will be poised to take proper corrective action if they are aware of common commercial loan difficulties.
Avoidable Commercial Real Estate Investment Property Financing Scenario Number One: Use of secondary business financing -
Many commercial borrowers want the flexibility to use subordinated debt (a seller second or other secondary financing) in order to acquire a commercial property or business opportunity investment with a smaller down payment. Many forms of business investing will not permit a seller second or other forms of subordinated debt. With a commercial loan via non-traditional business lenders, a commercial borrower can use subordinate business financing (including seller seconds) to reduce the amount of their down payment.
Commercial Mortgage Example Number Two: Sourcing-seasoning assets and seasoning of ownership -
Some commercial lenders will require borrowers to document the source of the down payment for a purchase (sourcing). Many business lenders require borrowers to document where down payment money is coming from, often for up to 12 months in order to provide seasoning confirmation. Ownership seasoning is determined by establishing a minimum period for ownership prior to being eligible for refinancing.
Such a problem will probably not deter all borrowers. When it does apply, business borrowers should insist on a lender without seasoning and sourcing requirements.
Business Financing Example Number Three: Commercial mortgage recall terms -
Business loan recall conditions will often allow the commercial lender to force the borrower to repay their loan before the normal loan expiration. If a commercial loan agreement does not include recall terms, such a possibility is not of immediate concern to a borrower.
Commercial lenders will routinely include recall conditions in a business loan agreement. The provisions which will prompt a recall will vary and typically include annual business lender monitoring of financial statements, tax returns and credit history. Without agreed income, tax returns and credit standards, the lender can choose to require the borrower to pay off the commercial loan within a very short period of time.
Contingency Plans for Business Finance Recalls: What to do about a commercial loan recall -
To avoid an unanticipated recall scenario, commercial borrowers would be wise to consider only commercial loans which do not have recall terms. For commercial borrowers who have recall provisions in their business financing agreement, it will be equally wise to consider refinancing their business loan or commercial mortgage before a recall occurs so that refinancing is accomplished when it is most appropriate for the borrower.
When borrowers receive a business financing recall, they must quickly obtain refinancing assistance. When reviewing commercial loan choices for refinancing, borrowers should attempt to exclude potential lenders that require recall terms.
Business Loan Example Number Four: Business financing that needs a long-term commercial loan -
Is long-term investing and financing really possible for a business loan? Some business investment lenders will only offer 5 years (or less) before commercial real estate financing will expire with a balloon payment due.
There are commercial mortgage programs which can provide long-term financing, even though many lenders will only offer shorter-term options for investment business financing. Longer-term commercial real estate financing will often be the critical difference that facilitates a successful business investment because a new business loan will not be required for many years and commercial loan payments will also be reduced.
Additional Commercial Loan Problems and Solutions -
Unfortunately commercial borrowers will frequently encounter commercial mortgage business loan problems similar to those described here. To better prepare for this, an advisable approach is to explore business financing resources that will facilitate a better understanding of complex commercial loan issues. The Commercial Real Estate Loan Guide and The Working Capital Management Guide are two examples of business finance resources that will provide possible solutions for many difficult commercial financing situations.