It is not unusual to find that business lenders and business loan brokers are not as forward-looking about commercial financing difficulties as most borrowers would expect, and I have published another article about commercial lenders to bypass. The focus here is on some of the typical commercial loan difficulties often overlooked by commercial lenders and borrowers.

Unanticipated circumstances can lead to unexpected problems with a commercial loan, and borrowers should be ready for these business financing scenarios. There are several critical commercial loan difficulties to be circumvented with business financing. Business loan problems are more serious and prevalent than many borrowers would imagine.

Some of these difficulties might be unavoidable, but in most cases these business financing challenges can be successfully overcome. By being aware of these common commercial loan obstacles, borrowers and their advisors will be properly positioned to take timely and appropriate corrective action.

(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.

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) 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 be due for a commercial mortgage.

If that sounds like short-term business financing instead of long-term, there are business lenders that can arrange 30-year commercial mortgage loans. Longer-term business financing will often be the critical difference that facilitates a successful business investment because new business financing will not be required for many years and commercial loan payments will also be reduced.

(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.

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.

To avoid this undesirable recall possibility, commercial borrowers would be wise to include only business financing without recall terms. For borrowers with recall terms in their current commercial loan, it will be equally wise to consider commercial mortgage refinancing prior to an unanticipated recall.

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

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