Basic Commercial Property Loan Options

By Author: Stephen Bush
Total Articles: 4762
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Based on a number of small business financing statistics, commercial lending to small businesses is already on life support. For the past year, most banks and lenders have been subject to both disastrous operating results and negative publicity.

Large corporations continue to have much more leverage than small business borrowers when it comes to bank loan negotiations for commercial real estate financing. Because of the prevailing ineffectiveness with commercial banking, obtaining commercial mortgage loans can no longer be taken for granted by small businesses. A primary emphasis in this discussion about "getting back to basics" for commercial property loans is the need for small business owners to be prepared for an extremely difficult commercial lending environment.

A reduced amount of leverage for most small business loans is one "new basic" that seems likely to become a permanent fixture for business finance services and commercial mortgage loans. Commercial debt refinancing will be more difficult because of the reduced leverage, especially when combined with decreasing commercial real estate values currently ...
... being experienced on a widespread basis. Another immediate impact of less loan leverage for borrowers is the need for a larger down payment to buy a business.

Change management to deal with working capital and business loan changes is likely to increase in importance for small business owners during the next year or two. Commercial borrowers will probably be unsuccessful in arranging new business financing if they are not properly prepared for the complexity of recent changes as well as anticipated changes for securing commercial loans.

The current business banking climate for commercial real estate loans provides an ideal illustration of many surprising changes and ongoing difficulties for small business financing. It is appropriate for business owners to "get back to basics" before finalizing new commercial loans because the issues currently impacting commercial mortgages are so widespread and effecting business borrowers everywhere. The most challenging aspect in commercial borrowers reacquainting themselves with the "basics" for commercial mortgage loans is likely to be the need to not only focus on the "old basics" but also on numerous "new basics" created by a massive shift in commercial loan services.

Very few banks have followed through on the assurances to return to a "normal" level of lending once they received bailout funding despite the apparent conclusion that the government bailouts helped to keep them operating. Effective commercial real estate financing is harder to find, and this has emerged as one key result of the changes and challenges involving commercial mortgages. To make this challenge even more difficult, very few commercial lenders are providing a candid assessment of their inability to provide commercial mortgage financing and commercial loans for a wide variety of small businesses. Banks are not generally being straightforward in telling prospective commercial borrowers when they have reduced their commercial loan activities, and this is a particularly growing (and annoying) trend. Whether obtaining a new commercial loan for buying a business or refinancing commercial debt, this observation applies equally. A dramatic reduction in the number of banks providing this kind of financing to small businesses is one inescapable "new basic" for commercial real estate loans. It will frequently be even more difficult to secure a commercial mortgage from a new and unfamiliar lender if the current bank for a business is not willing to help. This undesirable business funding situation is currently confronting commercial borrowers on a widespread basis. It is reasonable to determine if more big problems are lurking in the wings for commercial banking.

The need to get back to basics with working capital financing was previously published in a companion piece. The points made in that article are directly relevant to this discussion in terms of the growing challenges with commercial refinancing. Even though a small business owner might feel that they can obtain needed cash by refinancing an existing commercial mortgage loan in which they have substantial equity, any current effort to refinance a business loan is likely to be much more difficult than expected. When commercial real estate refinancing cannot be obtained, commercial borrowers should consider a working capital loan as a secondary solution.

To increase the chances that they receive sufficient business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners. Small business owners should have a candid conversation with a business finance expert to evaluate if their business might be exposed to the developing commercial banking difficulties.
About Author:
Steve Bush is a dependable source of small business financing and has offered candid advice to small businesses for 30 years. He furnishes commercial mortgages and business finance consulting throughout the U.S. Steve is the CEO and Founder of AEX Commercial Financing Group - http://www.small-business-financing-services.com