Business Financing Challenges - Commercial Loan Solutions

By: Stephen A. Bush

Commercial borrowers will frequently discover that lenders and business financing brokers are not adequately proactive about commercial loan obstacles. To address this, I have published a related business loan article about business lenders to circumvent. The central point of this article is about key commercial financing obstacles which business borrowers and lenders often fail to see in time.

Unexpected business financing possibilities can result in severe complications with a business loan, and business borrowers should be prepared for these commercial financing circumstances. There are many potential business loan obstacles to be evaded with commercial financing. Business financing problems with a typical commercial loan are more numerous and serious than most business borrowers would think.

Although some of these obstacles might be unavoidable, in most cases these business loan challenges can be overcome. By anticipating these recurring business financing problems, commercial borrowers and their advisers will be more able to take corrective action before it is too late.

(1) Difficult Business Financing Situation Number 1: Sourcing/seasoning assets and seasoning of ownership. This particular commercial loan problem will not be relevant to all business borrowers. However, if it is relevant, commercial borrowers should seek out a lender without sourcing and seasoning requirements or limitations.

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.

(2) Difficult Business Financing Situation Number 2: A borrower wants to use a substantial amount of subordinated debt (a seller second or other secondary financing) to reduce the amount of cash needed to purchase a commercial property.

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.

(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.

For those of you who feel that is a short-term business loan, you should restrict your options to commercial lenders that routinely offer a period of 30 years for a commercial loan. Long-term business financing will help facilitate a profitable commercial property investment because monthly commercial mortgage payments will be reduced, monthly cash flow will improve and new commercial financing will not be an issue for many years.

(4) 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.

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.

Contingency Plans for Business Loan Recalls: When borrowers receive a business financing recall, they must quickly obtain refinancing assistance. When reviewing commercial loan choices for refinancing, borrowers should exclude potential lenders that require recall terms.

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 2005-2007 AEX Commercial Financing Group, LLC. All Rights Reserved.

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