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Commercial lenders and commercial loan brokers are not as proactive about business financing problems as they could be. Because of this tendency, I have published a separate commercial loan article about business financing lenders to avoid. The focus of this article is on the equally important business loan problems often ignored by commercial borrowers and lenders alike. 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. (1) Avoidable Commercial Mortgage Scenario Number 1: Asset sourcing/seasoning and ownership seasoning. This potential business financing obstacle will not apply to all commercial borrowers. If it is applicable, borrowers need a lender without sourcing-seasoning limitations. Many commercial lenders will request business borrowers to document the source of the down payment (sourcing). Commercial lenders sometimes require that funds for a commercial mortgage down payment be verified, often for a period of up to 12 months (seasoning). If a lender imposes a minimum time a commercial property must be owned in order to refinance, this indicates seasoning of ownership. (2) Proactive Commercial Loan Example Number 2: A borrower wants to use a seller second or other secondary financing to decrease the down payment required to buy a business property. Many commercial loan programs will not permit a seller second. With business financing through less restrictive commercial lenders, a borrower will be able to employ a seller second and reduce their down payment needs. (3) Proactive Commercial Loan Example Number 3: Business financing that needs a long-term commercial loan. Is long-term financing really possible for a business loan? Some lenders will only offer 5 years before commercial real estate financing will expire with a balloon payment due. 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. (4) Avoidable Commercial Mortgage Scenario Number 4: Business loan recall provisions. Commercial loan recall covenants mean that the business lender can force the borrower to repay early by calling the loan before it would normally expire. This potential concern is not applicable to all borrowers since some business financing agreements will not allow a loan recall possibility. Traditional lenders frequently put recall clauses in their business financing provisions. The conditions which can trigger recalls differ and include regular evaluation of credit history and financials by the commercial lender. If required levels of credit standards and income cannot be confirmed, the lender will enforce the recall provisions by requiring an early and immediate payoff of the business loan. Business Financing Recall Contingency Plans: With a commercial loan recall, borrowers will need to refinance with a lender quickly. Prudent borrowers will exclude lenders that require recall agreements when evaluating business loan refinancing options. To avoid a potentially disastrous recall scenario, commercial borrowers would be wise to consider only commercial loans which do not have recall terms. For commercial borrowers who have recall provisions in their business financing agreement, it will be equally wise to consider refinancing their business loan before a recall occurs so that refinancing is accomplished according to the commercial borrower's timetable. Copyright 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.
Article Source: http://www.financemanual.com
Stephen A. Bush and AEX Commercial Financing Group publish the AEX Commercial Mortgage Guide and offer a free series of AEX Credit Card Processing Reports You can get a unique content version of this article.
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