Commercial Mortgage Loan Options - Business Loan Problems

Business owners are likely to be distressed when a business loan application is turned down and will be unsure as to why it took place and how to avoid a similar problem again. For each of the five primary reasons that a commercial lender might decline a commercial real estate loan, a practical solution is suggested for transforming the rejected commercial mortgage into approved business financing.

Two reasons (tax returns and business plan requirements) could impact virtually all businesses. Many business loan officers will begin their commercial loan review process by stating "We will need to see at least three years of tax returns" and "Can you show me your business plan?" before proceeding.

Business projects are occasionally too unique for business financing via a typical commercial bank. In these circumstances (even if a borrower has an acceptable business plan and tax returns), it is not unusual to be declined for a commercial 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.

Business Loan Disapprovals: (1) Special Purpose Commercial Property

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 rejected commercial real estate loan into an approved business loan: For most commercial borrowers, there are viable commercial mortgage options beyond traditional commercial lender choices.

There are action-oriented non-traditional commercial lenders that will offer commercial mortgage loans for most special purpose commercial property situations. The best business financing could be available only from a non-traditional lender when a traditional lender won't provide the necessary commercial real estate loan.

Business Loan Disapprovals: (2) Tax Returns Required

Reason Number Two for business loan rejections: A loan underwriter finds an issue on tax returns that disqualifies a business borrower under the bank's lending standards. This "issue" will often be inadequate net income, but when commercial loan underwriters analyze income tax returns, there can be a wide variety of other possibilities which produce the same disapproval.

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.

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 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 declined commercial mortgage into an approved commercial real estate loan: As mentioned above, there are other commercial lending options available. The commercial borrower's mission (and it is not impossible at all) is to use a commercial real estate lender that will allow them to get much larger amounts of cash out of a commercial refinancing without restrictions on what they do with it.

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 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 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) Decrease commercial mortgage costs by several thousand dollars. A typical business plan (prepared to normal bank specifications) costs $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 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.

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Contact Steve Bush at AEX Commercial Financing - Commercial Mortgage for stated income commercial mortgage - commercial loan solutions
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