Commercial Loan Alternatives for Difficult Business Financing Situations
by Stephen A. Bush
Unanticipated circumstances can lead to unexpected problems with a commercial loan, and borrowers should be ready for these business financing scenarios. There are several critical commercial loan difficulties to be circumvented with business financing. Business loan problems are more serious and prevalent than many borrowers would imagine.
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.
Proactive Commercial Loan Example Number 1:
Seasoning of ownership and sourcing-seasoning assets. This commercial mortgage difficulty will not matter to all borrowers. When it does apply, business borrowers should insist on a lender without seasoning and sourcing requirements.
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.
Avoidable Commercial Mortgage Scenario Number 2:
A borrower wants to use subordinated debt (a seller second or other secondary financing) in order to acquire a commercial property with a smaller down payment.
Commercial mortgage lenders will often not permit subordinated debt. With a business loan from more flexible lenders, a business borrower will not encounter restrictions on the use of subordinate financing and will decrease the down payment required.
Difficult Business Financing Situation Number 3:
A commercial loan that won't work without long-term financing. What is long-term financing for a commercial loan? Some commercial lenders view 3-5 years as the longest period before business financing will be subject to a balloon payment.
If that sounds like short-term business financing instead of long-term, there are business lenders that can arrange 30-year commercial mortgage loans. Longer-term business financing will often be the critical difference that facilitates a successful business investment because new business financing will not be required for many years and commercial loan payments will also be reduced.
Difficult Business Financing Situation Number 4:
Commercial loan recall possibilities. Commercial mortgage recall terms frequently permit the lender to call the loan (forcing the commercial borrower to repay early) prior to the expiration of the loan. This issue is not of concern to commercial borrowers whose business loan does not contain provisions permitting the lender to recall the loan.
Many traditional commercial lenders routinely place recall clauses in their commercial loan conditions. The terms which can cause a recall will vary but will commonly include periodic lender review of financials and credit history. Under these circumstances if prescribed levels of income and credit standards do not occur, then the lender will typically notify the commercial borrower that they must pay off the loan within a 30-90 day period.
Contingency Plans for Business Loan Recalls:
Borrowers would be wise to exclude business loans with recall terms so that they will not be confronted with an unanticipated recall situation. If business borrowers have recall conditions in their current commercial mortgage, it will be equally wise to actively pursue commercial loan refinancing before a recall is initiated by the lender so that refinancing involves a timetable convenient to the borrower.
Copyright 1995-2008 AEX Commercial Financing Group and Stephen Bush.
Contact Information
Stephen Bush
Chief Executive Officer
Phone: (937) 780-4030
bush@aexllc.com
PO Box 353, Leesburg OH 45135-0353 USA