Commercial Loan Problems - Business Financing Choices

It is not unusual to find that business lenders and business loan brokers are not as forward-looking about commercial financing difficulties as most borrowers would expect, and I have published another article about commercial lenders to bypass. The focus here is on some of the typical commercial loan difficulties often overlooked by commercial lenders and borrowers.

Unexpected circumstances can create chaos with business financing, and commercial borrowers should be prepared in advance for these commercial loan possibilities. There are a number of business financing problems to be avoided with a commercial loan. Difficulties with a typical business loan are probably more common than most commercial borrowers realize.

Some of these difficulties might be unavoidable, but in most cases these business financing challenges can be successfully overcome. By being aware of these common commercial loan obstacles, borrowers and their advisors will be properly positioned to take timely and appropriate corrective action.

(1) Difficult Business Financing Situation Number 1: Sourcing/seasoning assets and seasoning of ownership. This particular commercial loan problem will not be relevant to all business borrowers. However, if it is relevant, commercial borrowers should seek out a lender without sourcing and seasoning requirements or limitations.

For a purchase, some commercial lenders will want documentation about where the down payment is coming from (sourcing). Many commercial lenders will also require business borrowers to document commercial loan down payment funds over several months (seasoning). Seasoning of ownership involves the minimum time someone has owned a commercial property before they can refinance.

(2) Difficult Business Financing Situation Number 2: A borrower wants to use a substantial amount of subordinated debt (a seller second or other secondary financing) to reduce the amount of cash needed to purchase a commercial property.

Many commercial loan programs will not permit a seller second. With business financing through less restrictive commercial lenders, a borrower will be able to employ a seller second and reduce their down payment needs.

(3) Proactive Commercial Loan Example Number 3: Business financing that needs a long-term commercial loan. Is long-term financing really possible for a business loan? Some lenders will only offer 5 years before commercial real estate financing will expire with a balloon payment due.

For those of you who feel that is a short-term business loan, you should restrict your options to commercial lenders that routinely offer a period of 30 years for a commercial loan. Long-term business financing will help facilitate a profitable commercial property investment because monthly commercial mortgage payments will be reduced, monthly cash flow will improve and new commercial financing will not be an issue for many years.

(4) Proactive Commercial Loan Example Number 4: Business financing 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. This possibility is not relevant to business borrowers if their commercial loan does not contain such recall terms.

Traditional lenders frequently put recall clauses in their business financing provisions. The conditions which can trigger recalls differ and include regular evaluation of credit history and financials by the commercial lender. If required levels of credit standards and income cannot be confirmed, the lender will enforce the recall provisions by requiring an early and immediate payoff of the business loan.

Contingency Plans for Business Loan Recalls: When borrowers receive a business financing recall, they must quickly obtain refinancing assistance. When reviewing commercial loan choices for refinancing, borrowers should exclude potential lenders that require recall terms.

To avoid a potentially disastrous 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 before a recall occurs so that refinancing is accomplished according to the commercial borrower's timetable.

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

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