Business Finance Options for Business Loan and Commercial Mortgage Rejections

Business owners are likely to be distressed when a business loan application is turned down and will be unsure as to why it took place and how to avoid a similar business finance problem again. For each of the five primary reasons that a commercial lender might decline a commercial mortgage, a practical solution is suggested for transforming the rejected business finance - commercial loan application into approved business financing.

Two business finance reasons (tax returns and business plan requirements) could impact virtually all businesses. Many business loan officers will begin their commercial loan review process by stating "We will need to see at least three years of tax returns" and "Can you show me your business plan?" before proceeding.

Business projects are occasionally too unique for business financing via a typical commercial bank. In these circumstances (even if a borrower has an acceptable business plan and tax returns), it is not unusual to be declined for a commercial loan by a traditional commercial lender.

The business finance reasons described do not involve unusual issues. It is likely that two or more of the reasons will be applicable for many commercial loan situations.

COMMERCIAL MORTGAGE LOAN DISAPPROVALS: (1) LIMITED USE PROPERTIES

Reason Number One for business loan rejections: The lender does not make commercial mortgage loans for the type of business financing involved or imposes special covenants that make the commercial real estate loan difficult for the business owner. In a typical example, fewer commercial banks are offering business financing for bar and restaurant properties.

In another example, an auto services business is usually given expensive (and often unnecessary) environmental conditions. There are numerous "special purpose" properties such as churches, golf courses and funeral homes that traditional banks will exclude from their commercial lending portfolio.

Strategy Number One for converting the declined commercial mortgage into an approved commercial real estate loan: For most business borrowers, there are prudent business loan options beyond traditional commercial bank choices.

There are action-oriented non-traditional commercial lenders that will offer commercial mortgage loans for most special purpose commercial property situations. The best business financing could be available only from a non-traditional lender when a traditional lender won't provide the necessary commercial real estate loan.

COMMERCIAL MORTGAGE LOAN DISAPPROVALS: (2) TAX RETURN REQUIREMENTS

Reason Number Two for commercial mortgage rejections: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when business loan underwriters look at tax returns, there are many other possibilities which produce a similar result.

Strategy Number Two for converting the disapproved business loan into an approved commercial mortgage loan: Commercial loan borrowers will never have this reason to worry about if they are using "Stated Income" business financing. Very few traditional commercial lenders use the Stated Income Business Finance approach (no tax returns, no IRS Form 4506, no income verification) for a commercial mortgage.

Business borrowers should look for lenders using Stated Income business loans. This approach, however, will not work for all commercial loans due to a prevailing maximum loan of $3 million for typical Stated Income commercial mortgage situations.

COMMERCIAL MORTGAGE REJECTIONS: (3) BUSINESS FINANCE CASH OUT LIMITATIONS

Reason Number Three for commercial mortgage and business loan disapprovals: When a business attempts to refinance their commercial property loan and wants to get significant working capital out, it is normal for a traditional bank to restrict what the funds are used for and to severely limit the amount of cash received. Even though the bank is willing to make the commercial loan, if they won't provide the cash required by the commercial borrower, this is similar to rejecting the business finance loan.

Strategy Number Three for converting the declined commercial mortgage into an approved commercial real estate loan: As mentioned above, there are other commercial lending options available. The commercial borrower's mission (and it is not impossible at all) is to use a commercial real estate lender that will allow them to get much larger amounts of cash out of a commercial refinancing without restrictions on what they do with it.

COMMERCIAL MORTGAGE REJECTIONS: (4) BUSINESS FINANCE COLLATERAL REQUIRED

Reason Number Four for business loan rejections: The bank will not approve a commercial mortgage loan without collateral, typically as a lien on the commercial borrower's personal residence or other personal assets.

Strategy Number Four for converting the declined commercial mortgage into an approved commercial real estate loan: Commercial borrowers should seek out lenders that do not "cross collateralize" assets as a condition for obtaining a working capital business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal assets and business assets.

COMMERCIAL MORTGAGE LOAN DISAPPROVALS: (5) REQUIRED BUSINESS FINANCE PLAN

Reason Number Five for business loan rejections: A bank's loan underwriter or loan officer does not feel that the business plan submitted by the borrower supports the required commercial mortgage loan.

Strategy Number Five for converting the disapproved business loan into an approved commercial mortgage loan: Commercial borrowers should save money and avoid possible delays by working with a lender that does not require a business finance plan due to these primary advantages:

(A) Reduce commercial loan costs by thousands of dollars. A common range for an average business plan (prepared to typical bank specifications) is $5,000 to $10,000.

(B) Reduce commercial loan closing time by several months. Business plans can be prepared before or after applying for a commercial loan, but either way the net extra time required will probably be 1-2 months or more.

(C) If a professional business plan is not needed, an approval for the business financing requires one less item.

Copyright 1995-2007 AEX Commercial Financing Group and Stephen Bush. All Rights Reserved.

Article Source: http://www.articlesbasecamp.com

Steve Bush is the CEO and Founder of AEX Commercial Financing - Business Finance - Commercial Mortgage Solutions. Steve and AEX Credit Card Processing and Business Financing provide candid business loan advice for business opportunity financing to buy a business throughout the United States.

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