Principles Of The Commercial Loan Review

By: Michael J. Bartonolis

The owner of a strip mall, shopping center, office building, apartment complex, multi-tenant building and other kinds of commercial properties, can workout with the lender a commercial loan modification agreement. The changes to the commercial loan may cause a reduction in the interest rates, the lengthening of the loan term, interest-only payments for a certain period of time, or a discount in the outstanding amount. However, before the talks on possible modifications to the terms of the loan agreement can be held, the lender has to conduct a commercial loan review. This review will entail the examination of the various documents of the borrower and various information.
Both the lender and the borrower will be involved in the commercial loan review and is required before a commercial loan modification could be forged by both parties. It should be pointed out that the bank regulators are encouraging the restructuring of the loans because they know that a large number of the borrowers do not desire to default on their payments but the economic situation has only made them temporarily incapable of coming up with the payments. A number of the commercial property owners only need a breather to recover from their present financial conditions while others may need a permanent change to the terms of the loan. The loan workout will be advantageous to the borrower because it will forestall the repossession or foreclosure of the property. It will be advantageous for the lender because the borrower continues paying although at lower amounts and the costs of foreclosure are avoided. During the crisis in the commercial real estate market, the lender also avoids being stuck with assets that are very difficult to sell if a commercial loan modification is allowed.
The commercial loan review process is used to determine if the business has the capability to continue with the mortgage if some changes to the terms are made. Some of the factors that the bank or lender will look into during the procedure to determine the creditworthiness of the commercial property owner include the trend in the cash flow of the business, the payment history, market conditions, and the presence of guarantors.
From the point of view of the borrower, the commercial loan review process is quite different. This process is often facilitated for the property owner by loss mitigation experts and lawyers who will carefully examine the text found in the initial loan contract. This is because it had been observed that during the boom years in commercial real estate, there have been violations made by some lenders against certain laws and regulations that were designed to safeguard the rights of borrowers. If violations are found in the documents, this would mean that the provisions in the contract, such as foreclosure, cannot be enforced. The lender may even have to refund payments made for interests since the start of the loan. Therefore, the commercial loan review can provide the borrower with powerful negotiation tools that can hasten the lender's approval of the commercial loan modification application.

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Ready to learn more? You are welcome to visit us at our commercial loan modification website. You should also check out our recent blog post on Commercial Loan Modifications.

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