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Commercial Mortgage Choices - Business Loan Rejections
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. Similarly, auto service businesses are frequently given unnecessary (and expensive) environmental reporting requirements. There are many "special purpose" properties such as funeral homes, campgrounds and churches that most traditional banks will not include in their business 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 Rejections: (2) Tax Returns 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 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 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 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. Commercial Mortgage Rejections: (4) Collateral Required 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 declined commercial mortgage into an approved commercial real estate loan: Commercial borrowers should seek out lenders that do not "cross collateralize" assets as a condition for obtaining a business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal assets and business assets. Commercial Mortgage Rejections: (5) Business Plan Requirements 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 rejected commercial real estate loan into an approved business loan: Business borrowers should experience fewer delays and profit from dealing with a commercial lender that does not have a business plan requirement due to several key benefits: (A) Decrease commercial mortgage costs by several thousand dollars. A typical business plan (prepared to normal bank specifications) costs $5,000 to $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 Directory: http://www.articledashboard.com Contact S.A. Bush at AEX Working Capital Financing Solutions for straightforward church loan - business financing advice |
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