Many banks are so conscious of their reputation in the local
community that they don’t want to be known for refusing
business 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 business loan without saying “no”. Here are
two examples of a bank saying =ECyes=EE when they mean “no”.
EXAMPLE # 1: STRICTER TERMS FOR BUSINESS LOANS
A 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 BUSINESS LOANS
When 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 BUSINESS LOANS IMPACTED BY THE ABOVE
CIRCUMSTANCES:
There 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.
Here are two suggested resources for more information: The
Commercial Real Estate Loans Guide ( http://www.aexcfgllc.com )
and The Business Cash Advance Guide ( http://www.aexcfg.com ).
Copyright 2005-2006 AEX Commercial Financing Group, LLC. All
Rights Reserved.
About The Author: Stephen Bush provides commercial financing
assistance throughout the United States and focuses on more
difficult commercial loans. Steve is the Chief Executive
Officer of AEX Commercial Financing Group, LLC (
http://www.aexcommercialfinancing.com ) in Ohio.
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