Many banks are so conscious of their reputation in the local community that they don’t want to be known for refusing commercial loan requests by respected community residents. One alternative that many of these banks have adopted is the art of never saying “no” in such commercial financing situations. What they do instead is to attach onerous conditions when they say “yes”. In most cases the bank doesn’t expect the commercial borrower to accept the conditions, and therefore the bank has avoided making the commercial loan without saying “no”. Here are two examples of a bank saying “yes” when they mean “no”.EXAMPLE # 1: STRICTER TERMS FOR COMMERCIAL LOANSA traditional bank has decided to drastically reduce the amount of commercial loans that they make to restaurants and bars. Instead of “officially” eliminating this category from their lending portfolio (which they feel would hurt their desired image as a full-service commercial lender), they have decided to add stricter terms to their commercial loan underwriting criteria for such properties. They might now require three years of tax returns, impose a higher minimum loan amount (to effectively eliminate smaller restaurants and bars), increase the percentage required for a down payment, limit loans to 3-7 years (instead of 15-25 years), require a detailed business plan, and impose annual review criteria which would allow them to “recall” the loan if cash flow is not maintained at a prescribed level. Because the bank has said “yes” when they mean “no”, if a business owner accepts the terms anyway, the borrower will end up with commercial loan terms that are detrimental to the long-term health of their business.EXAMPLE # 2: LIMITED CASH OUT WHEN REFINANCING COMMERCIAL LOANSWhen a business is refinancing their current commercial mortgage and wants to get a significant amount of cash out for various uses, it is not unusual for the bank to limit the amount of cash to amounts as small as $100,000. Even though the bank might make the business loan, if they won’t provide the amount of cash needed by the commercial borrower, this is equivalent to declining the loan. The bank has said “yes”, but a business might have over a million dollars in equity in their property and only be able to access $100,000 (which is really a “no” to the business owner who wants to use a significant portion of their equity to expand the business).ALTERNATIVE SOLUTIONS FOR COMMERCIAL LOANS IMPACTED BY THE ABOVE CIRCUMSTANCESThere are better options for commercial loans available elsewhere! Business owners should explore other business loan alternatives before accepting business loan terms that put them at a competitive disadvantage. Look for lenders who specialize in commercial loans and have commercial mortgage terms such as the following: (1) Stated Income (no tax returns and no income verification); (2) long-term loans of 15-25 years (or more) without recall or balloon provisions or annual review criteria; (3) business plans not required; (4) unlimited cash out when refinancing; and (5) minimum loan of $100,000.Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.
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