Business Financing Challenges and Commercial Loan Solutions

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.

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.

Although some of these obstacles might be unavoidable, in most cases these business loan challenges can be overcome. By anticipating these recurring business financing problems, commercial borrowers and their advisors will be more able to take corrective action before it is too late.

The obstacles described below involve the following: (1) sourcing/seasoning of assets and seasoning of ownership by a business lender; (2) treatment of seller seconds, seller financing or secondary financing by a commercial lender; (3) lack of longer-term financing; and (4) commercial loan recall terms.

PROACTIVE BUSINESS FINANCING - 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.

Some commercial lenders will require borrowers to document the source of the down payment for a purchase (sourcing). Commercial lenders will also frequently require that business financing down payment funds be substantiated, most commonly for 1-12 months (seasoning). Seasoning of ownership is based on the minimum time a commercial property must be owned before refinancing can occur.

PROACTIVE BUSINESS FINANCING - COMMERCIAL LOAN EXAMPLE NUMBER 2:
A borrower wants to use a seller second or other secondary financing to decrease the down payment required to buy a business 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.

PROACTIVE BUSINESS FINANCING - COMMERCIAL LOAN EXAMPLE 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.

PROACTIVE BUSINESS FINANCING - COMMERCIAL LOAN EXAMPLE NUMBER 4:
Commercial loan recall possibilities.

Commercial mortgage recall terms frequently permit the lender to call the loan (forcing the commercial borrower to repay early) prior to the expiration of the loan. This issue is not of concern to commercial borrowers whose business loan does not contain provisions permitting the lender to recall the loan.

Business lenders regularly include recall clauses in their business loan agreements. The provisions which will prompt a recall will vary and typically include annual business lender monitoring of financial statements, tax returns and credit history. Without agreed income, tax returns and credit standards, the lender can choose to require the borrower to pay off the commercial loan within a very short period of time.

PROACTIVE BUSINESS FINANCING - 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.

PROACTIVE BUSINESS FINANCING - CLOSING COMMERCIAL LOAN COMMENT

It is always wise to anticipate, study and understand business financing problems before they occur. This practice will particularly pay dividends for commercial borrowers in the event that a lender or business loan broker is not also proactive about such possibilities.