Commercial Mortgages – Four Important Strategies for Small Business Borrowers – Business Commercial

What are the most important qualities to look for in small business commercial mortgages? This article describes four such qualities. But if a commercial borrower can’t find all of the commercial mortgage qualities that are considered most important, then which qualities should be viewed as the most critical? The answer to the latter question will often depend on the borrower’s unique individual circumstances. For some borrowers there may only be one or two critical qualities that will be essential to the success of their loan. For example, if a commercial borrower needs to refinance a business property and get $1 million in cash to do with as they choose, the ability to get unrestricted cash out will probably supersede the four loan strategies addressed below.Aside from special situations like that, the following advice about four important strategies is based on commercial mortgage qualities considered to be repeatedly critical to the long-term success of a business. There is no attempt to rank these four commercial mortgage strategies in any particular order.ONE:Commercial mortgage borrowers should seek out long-term commercial mortgage loans that are not subject to recall or balloon payments. Commercial properties should not be financed with short-term funds. It is essential to obtain long-term financing of at least 15-20 years (and longer is even better). This is a prime example of using contingency planning to help commercial borrowers adapt to unknown future circumstances. Commercial borrowers should expect to encounter higher interest rates for longer-term financing (when compared to short-term traditional bank loans). However, most commercial borrowers will be pleasantly surprised when they see lower monthly payments in spite of a higher rate. The resulting improvement in positive cash flow can be the critical difference that creates a truly successful business investment.TWO:Commercial real estate loans under one million dollars should be assumable. This strategy is primarily about flexibility and providing for a more orderly transfer of a business to someone else in the future. It is also an example of using contingency planning to select a commercial lender by anticipating future circumstances and selecting a commercial real estate loan that will help a commercial borrower adapt to those circumstances.THREE:Seller seconds and other variations of subordinate financing should be allowed. This will permit the most aggressive Combined-Loan-to-Value (CLTV) for commercial mortgages, up to 95% of the property value. This is important if you are the buyer because it will provide another financial tool to help with financing. It is important to the seller because it might enable someone to buy the property who could not otherwise do so.FOUR:Commercial mortgage borrowers should seek out lenders using Stated Income commercial loans and limited documentation requirements. Very few traditional banks use Stated Income (no income verification and no tax returns) for a commercial real estate loan. Most commercial lenders will perform a thorough income verification as part of their underwriting process. This will typically include copies of tax returns as well as a requirement to sign IRS Form 4506 which authorizes the lender to obtain tax returns directly from the IRS. Many traditional banks will have loan covenants stipulating that the lender must receive financial data even after the loan closing and that the loan can be recalled if the audit of this data is not satisfactory to the lender.Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.