There are a surprising number of problems which should be
anticipated when arranging a commercial loan. Several of
these potential business financing difficulties are
relatively unknown by most borrowers. These issues are
relevant for commercial real estate financing, business
opportunity investment loans and business cash advance
circumstances, although not all factors will apply to each
situation.
Commercial Loan Advisory Reports -
We have published separate commercial loan advisory reports
which provide a comprehensive discussion of the major
problems likely to be encountered in typical business
financing and commercial real estate loan circumstances.
For example, one report focuses on common business
opportunity investment financing difficulties. In another
report, we discussed the obstacles usually experienced with
SBA loan refinancing.
The Black Ice Analogy: Unseen Business Financing Problems -
The focus in this article is to highlight several of the
more obscure commercial loan problems. We consider these
often hidden business financing difficulties to be of
critical importance to a commercial borrower. Drivers
familiar with an extremely hazardous road condition known
as black ice (in which ice is largely invisible on the
road) will readily appreciate that unknown and unseen
business finance problems can be particularly hazardous to
the financial health of a business.
Online Business Finance Applications -
The first relatively unknown business financing problem
involves the increasing use of internet technology by
commercial lenders. Many commercial loan sites encourage
borrowers to submit an online application. This is not a
prudent way for a business owner to proceed with their
commercial financing.
It is important that business owners understand that it is
not in their best interest to submit an online business
financing application. For a more detailed understanding of
why an online commercial loan application is inadvisable
and how to proceed in a search for viable financing,
borrowers should review the report entitled How and Why to
Avoid the Online Business Loan Application Trap.
Recall Provisions for a Commercial Mortgage -
The next obscure but nevertheless serious business
financing problem to anticipate involves the use of loan
recall terms by a lender. Commercial loan recall covenants
mean that the lender can force the borrower to repay early
by calling the loan before it would normally expire. Many
traditional commercial lenders routinely place recall
clauses in their commercial mortgage conditions, but this
potential concern is not applicable to all borrowers since
some financing agreements will not allow a loan recall
possibility.
The circumstances which can cause a recall will vary but
can commonly include periodic lender review of financial
statements, tax returns and credit history. If prescribed
levels of income, credit scores or other benchmarks are not
present, then the lender will typically notify the
commercial borrower that they must pay off the loan within
a 30-90 day period.
With a commercial loan recall, borrowers will need to
refinance quickly. Prudent borrowers will exclude lenders
that require recall agreements when evaluating business
financing options. For commercial borrowers who have recall
provisions in their current business loan agreement, it
will be equally wise to consider refinancing their
commercial mortgage before a recall occurs so that
refinancing is accomplished according to the preferred
timetable of the business owner.
Balloon Payments and Short-term Business Loans -
Another often overlooked commercial financing problem is
the increasing emphasis on short-term financing by many
commercial lenders. How long is a long-term commercial
loan? Most business financing experts will advise a minimum
loan period varying from 10 years to 30 years depending on
the specific circumstances of the borrower. Unfortunately
many business lenders often consider three years as the
maximum period before a balloon payment will be due for a
commercial mortgage.
With a balloon payment condition, a business owner will be
required to either pay the remaining loan balance or
refinance. This kind of loan is a short-term commercial
loan instead of long-term and should be avoided whenever
feasible. Longer-term business financing will often be the
critical difference that facilitates a successful business
investment because new financing will not be required for
many years and business loan payments will usually be
reduced.
Inexperienced Commercial Real Estate Loan Lenders and
Advisors -
The final example of a problem that is not obvious to most
commercial borrowers involves a shortage of business loan
experts providing candid advice to business owners. The
process of business investing and business financing has
become more specialized during the past few years. There
have been some recent real estate and business investment
developments that have made this process even more
complicated. The current turmoil in residential real estate
investment property has resulted in an increasing number of
residential lenders and advisors attempting to become
active in commercial loan activities.
This is an almost impossible transition for most
residential lenders and advisors. There are over 25
critical differences between residential and commercial
property investing. As a result, these new and
inexperienced commercial financing advisors frequently
provide woefully inadequate advice and potentially
disastrous business financing for their clients.
How to Avoid These and Other Commercial Financing Problems -
What can commercial borrowers do to avoid a similar fate? A
pragmatic approach is to explore additional resources that
will facilitate a better understanding of complex business
finance issues. The Commercial Real Estate Investment
Property Loan and Business Finance Guide is one example of
business financing resources that will provide strategies
and solutions for many problematic commercial loan
circumstances.
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Stephen Bush and AEX Commercial Financing Group provide
business finance - commercial real estate loan help and AEX
Investment Commercial Loan - Commercial Mortgage Reports:
http://www.real-estate-investment-property.com
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