Unexpected Commercial Mortgage and Business Financing Problems

Most business borrowers will be unpleasantly surprised by the problems generally experienced with typical business financing. Perhaps of even more concern is that many serious commercial loan difficulties are not widely known even by loan advisors. The potential difficulties can occur with business opportunity financing, real estate investment property loans and business cash advance services, although some of the issues will be restricted to specific circumstances.

The Black Ice Analogy: Unseen Business Finance 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 appreciate that unseen business finance problems can be particularly hazardous to the financial health of a business.

Online Business Financing 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 to Avoid the Online Business Financing Application Trap.

Balloon Payments and Short-term Commercial Loan Situations

Another often overlooked commercial financing problem is the increasing emphasis on short-term financing by many commercial lenders. 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.

Recall Provisions for a Commercial Mortgage Loan

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. 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.

Inexperienced Commercial Real Estate Financing 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 commercial real estate and business finance 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 because there are over 20 critical differences between residential and commercial property investing. Because of this, new and inexperienced commercial financing advisors frequently provide woefully inadequate advice and potentially disastrous business financing for their clients.

How to Avoid Unexpected Commercial Financing Problems

What can commercial borrowers do to avoid a similar fate? One practical approach is to explore additional resources that will facilitate a better understanding of complex business finance issues. The Working Capital Management Guide and The Commercial Real Estate Financing Guide are two examples of business financing resources that will provide strategies and solutions for many problematic commercial loan circumstances.

We have published separate commercial mortgage 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, In one report, we discussed the obstacles usually experienced with SBA loan refinancing. Another report focuses on common business opportunity investment financing difficulties.

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

Steve Bush is the CEO of AEX Commercial Financing Group and Commercial Mortgage Business Finance Solutions. Steve provides candid commercial real estate financing and commercial loan advice throughout the United States for business opportunity loan and business cash advance programs.

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