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Business Loan Solutions - Commercial Mortgage Loan Strategies

By: Stephen A. Bush 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 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 provided below represent commonly-found issues. It is likely that several of the reasons will be relevant for most business loan scenarios.

Commercial Mortgage Rejections: (1) Special Purpose 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 another example, an auto services business is usually given expensive (and often unnecessary) environmental conditions. There are numerous "special purpose" properties such as churches, campgrounds and funeral homes that traditional banks will exclude from their commercial lending portfolio.

Strategy Number One for converting the disapproved business loan into an approved commercial mortgage loan: For most business owners, there are reasonable commercial loan options beyond traditional commercial lenders.

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 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.

Borrowers should search for commercial lenders using Stated Income commercial mortgage loans. Unfortunately, this suggested solution will not work for all commercial loans because of a normal maximum loan amount of about $3 million for a Stated Income business loan.

Commercial Mortgage Rejections: (3) Cash Out 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 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.

Commercial Mortgage Rejections: (4) Collateral Required

Reason Number Four for commercial mortgage rejections: The bank will not provide a business loan without adequate collateral, usually in the form of a lien on personal assets such as the commercial borrower's home.

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 Rejections: (5) Business Plan Requirements

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 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) Reduce commercial loan costs by thousands of dollars. A common range for an average business plan (prepared to typical bank specifications) is $5,000 to $10,000.

(B) Reduce commercial loan closing time by several months. Business plans can be prepared before or after applying for a commercial loan, but either way the net extra time required will probably be 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.

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

Stephen Bush and AEX Commercial Financing publish the AEX Working Capital Loan - Credit Card Financing Guide and offer free Commercial Mortgage Reports
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