Business Loan Solutions - Commercial Mortgage Loan Strategies
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.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?" beforeCommercial property loan requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for a business loan by a traditional commercial bank.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 Loan Disapprovals: (1) Limited Use PropertiesReason Number One for commercial mortgage loan and business loan disapprovals: The commercial lender does not typically make commercial loans for the kind of business involved or imposes special conditions that make the commercial property loan impossible for the borrower. As one common example, fewer lenders are providing commercial real estate financing for restaurants and bars.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 declined commercial mortgage into an approved commercial real estate loan: For most business borrowers, there are prudent business loan options beyond traditional commercial bank choices.There are capable commercial lenders that are interested in business financing for special purpose properties. The best business loan might be available only from a non-traditional commercial lender when traditional banks won't make the requested commercial mortgage loan.Commercial Mortgage Loan Disapprovals: (2) Tax Return RequirementsReason 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 declined commercial mortgage into an approved commercial real estate loan: Business borrowers will never have this reason to worry about if they are applying for a "Stated Income" commercial loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for a business loan.
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2 comments:
Hm... Cool post. I'll keep this one in mind because I'm looking to run a business soon. I'm ready for the challenge, but I can still use all the help and advice I can get. Lately I've been thinking about buying a business instead of starting one from scratch. Maybe a franchise? I'm not sure. Any suggestions? Advice? Thanks!
@Jenny -- There are a lot of resources online that you can check out if you're strongly considering to buy a business. There's one called BizTrader.com, which is an online global marketplace where you can buy and sell businesses. It has a bunch of different resources, and you can also use it to find a lender, broker, etc.
Then there are always books, magazines, and local small business groups that can provide helpful advice.
Good luck!
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