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Commercial Loan Difficulties - Business Financing Options
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.

A few of these business financing problems will be unavoidable, but in most cases these commercial loan challenges can be met successfully. Business borrowers and their advisors will be better prepared to take appropriate and timely corrective action by properly anticipating these recurring commercial financing difficulties.

(1) Proactive Commercial Loan Example Number 1: Seasoning of ownership and sourcing-seasoning assets. This commercial mortgage difficulty will not matter to all borrowers. When it does apply, business borrowers should insist on a lender without seasoning and sourcing requirements.

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) 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.

Many forms of business financing will not permit a seller second or other forms of subordinated debt. With a commercial loan via non-traditional business lenders, a commercial borrower can use subordinate financing (including seller seconds) to reduce the amount of their down payment.

(3) Avoidable Commercial Mortgage Scenario Number 3: A business loan scenario that requires long-term business financing. How long is a long-term commercial loan? Business lenders often consider 3 years as the maximum period before a balloon payment will

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be due for a commercial mortgage.

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) 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.

Many traditional commercial lenders routinely place recall clauses in their commercial loan conditions. The terms which can cause a recall will vary but will commonly include periodic lender review of financials and credit history. Under these circumstances if prescribed levels of income and credit standards do not occur, then the lender will typically notify the commercial borrower that they must pay off the loan within a 30-90 day period.

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.

Steve Bush and AEX Commercial Financing provide credit card processing advice. Free Business Financing and Commercial Mortgage reports
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