Commercial Loans

It is prudent to have a contingency plan when attempting to obtain commercial loans and business cash advances. Having a Plan B for commercial financing and working capital funding will avoid many serious problems.

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Contingency planning (“always have a Plan B”) is likely to help small business owners avoid complex problems. But when it comes to commercial loans and commercial mortgages, working capital strategies often fail to include adequate attention to contingency plans and what can go wrong.

One of the most entertaining and effective depictions of contingency planning is a movie called “Rare Birds”. This movie stars William Hurt and includes variations of the line, “Always have a Plan B”. For any business owner who doubts the importance of contingency plans, the movie will provide an enlightening perspective.

The usefulness of a Plan B mentality is likely to be beneficial to many aspects of running a successful business. Contingency plans appears to be under-utilized when business owners seek new working capital funds via strategies such as commercial mortgages and business cash advances.

A major reason for this oversight is that many commercial borrowers probably assume that there are not effective alternatives to the business financing they are seeking. With this thinking, business owners might believe that it would not make sense to devote time to exploring a contingency finance plan. After watching the movie mentioned above, it will become much easier to understand at times like this that it is not a waste of time for businesses to “Always have a Plan B”.

In this regard, Plan B contingency commercial financing should be viewed as insurance to protect a business owner in the event that something goes wrong with their working capital management. A few examples are provided below.

First, a surprising number of local and regional banks have recently decided to pull the plug on future business financing in their lending portfolio. When they do so, very little advance notice has been provided in most instances. If a business has commercial loans or commercial mortgages with a regional or local lender, a Plan B should be developed for the contingency that alternative business loan arrangements could be needed in the near future.

Second, many small businesses have commercial loans that contain recall provisions that permit the lender to review the loan each year. Even though in this instance the commercial lender might continue a financing role for some businesses, they will in fact selectively eliminate what they consider to be marginal loans by use of the recall loan terms. If they do, the borrower will need to pay off the entire loan or refinance within a limited period of time. The loss of control by the borrower even though they might have been making timely payments is perhaps the most disturbing aspect of recall features. The best solution for avoiding this possibility is to review current business loans and explore Plan B refinancing options if recall terms are included.

Third, numerous prominent providers for business cash advances routinely make unrealistic promises about what they can do and how long it will take. Business owners should have thorough discussions with a potential business financing advisor to adequately prepare for this possibility. In this case the Plan B approach occurs prior to finance arrangements being finalized (unlike the first two examples in which financing was already in place).

Fourth, many lenders for SBA loans, business opportunity financing and commercial mortgage loans are frequently guilty of under-delivering and over-promising. Local and regional lenders seem to produce a disproportionate number of problems like this. Similar to the recommended approach for business cash advances, commercial borrowers should pursue Plan B contingency financing. The ideal timing to discuss alternative commercial financing options is before committing to a specific lender.

Finally, for the four examples noted above as well as the numerous other possibilities where contingency planning is appropriate for commercial loans and working capital loans, we do have a closing thought. “Always have a Plan B”.

The Mezzanine mortgage lender uses the membership interests of the LLC as collateral for their loan instead of the property. Purchase accomplished! Mezzanine lenders also play an important role in large construction loans, too. Unfortunately, these types of commercial loans aren’t available to regular mortals.

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This is the “answer” to a question I received this past week concerning a class of commercial real estate loans called “mezzanine” debt. If you’ve never heard of it, don’t worry. It’s usually used by fairly substantial commercial real estate developers and investors in situations where the existing debt doesn’t go far enough to get the property financed. Mezzanine debt is the modern-day equivalent of second trust deeds.

First, you need to understand that “modern” commercial lenders are a jealous lot: Most of them, whether bank, CMBS* mortgage bank, and sometimes life insurance companies won’t allow a junior lien to be recorded against a property where they have a first trust deed. There are several reasons for this, but the bottom line is that real estate investors would have needed a great deal of cash to get larger transactions done until the mezzanine lenders showed up. Here’s an example:

A real estate investor has owned a large shopping center for 5 years and wants to sell it. When he bought it, he got a 75% LTV loan of $6 Million on his $8 Million purchase price using a Conduit* loan from a mortgage bank. Rates went down from the time he bought it, and it has appreciated to $16 Million in the same time, and his commercial loan balance is now $5.5 Million. Because this is a Conduit loan, our seller would face a prepayment penalty in the range of $600,000 to $1 Million! And since they don’t allow second trust deed on the property, the Buyer would have to come up with over $10.5 Million to buy it! Not.

Mezzanine mortgage lenders get around this problem by lending on collateral other than the property. Commercial loan Conduits require borrowers to create a special entity, usually a LLC, to own the property to protect them in the event the borrower files for bankruptcy. The Mezzanine mortgage lender uses the membership interests of the LLC as collateral for their loan instead of the property. So in our example, the Mezzanine lender steps up with a loan as large as $7.3 Million (this would bring the combined loans to 80% of the purchase price), depending upon the lender’s debt service requirements. Voila! Purchase accomplished!

Mezzanine lenders also play an important role in large construction loans, too. Unfortunately, these types of commercial loans aren’t available to regular mortals. The smallest Mezzanine loans tend to be in the $2 Million the $3 Million range. But it’s good to know they’re there when you do need one!

*CMBS: Commercial Mortgage Backed Securities, usually arranged by major Wall Street investment banks who are referred to as “conduits.”

A sicl is a commercial loan that does not require the full documentation that is required of a full document commercial loan. This type of commercial loan does not require the borrower to be able to prove that they can afford to make the loan payments from their own personal income but instead relies on the rents of the commercial property or the possible rents for the property.

Financial Benefits of a stated income commercial Loan include:

* Less Documentation The stated income commercial loan requires less documentation than a tradional commercial loan. In many cases since the loan is only underwritten to the properties cash flow or potential cash flow it is not necessary to provide as much documention.

* Easier approval process This commercial loan has an easier approval process because it does not have to be underwritten to both the property cash flow and a secondary repayment source such as the borrowers personal income.

secondary repayment source such as the borrowers personal income. Lower credit score requirements Some of these commercial loan programs also have reduced credit requirements.

Examples of a typical stated income commercial loan borrower include:

* A self employed small business owner that does not report all of their income on their tax returns who is looking to purchase a commercial property using a commercial loan.

* A real estate investor that does not show the amount of income necessary to qualify for a traditional commercial bank loan but the property has rental income that will support the debt payments.

Purpose

A stated income commercial loan is designed to help a borrower purchase real estate that they would otherwise be unable to purchase without a significant down payment. The commercial property does not have to be held in the name of the borrower or the operating company but can be held in the name of a holding company.

There are certain criteria for eligibility of this type of commercial loan.

The business that is occupying the property must be in business at least 2 years.

The guarantors credit score must be 600 or above.

The guarantor and operating company can not have a bankruptcy that is more recent than 3 years.

Structure

This commercial loan is only done on a first trust basis although it is possible to have a second trust provided by someone else. There are instances where combined total financing can be close to 100%. This depends on the type of commercial property, credit of the guarantor and other underwriting factors. Closing costs can be financed into the loan under most circumstances.

Easier than you think!

The stated income commercial loan is really meant to help people qualify for a loan without the hassle of providing the full documentation needed on a traditional bank loan.

Rates are slightly higher.

The interest rates are slightly higher for this type of commercial loan but the loans can be amortized up to 30 years.

The stated income commercial loan closes quickly in most cases.

It usually takes about 30 to 45 days from start to finish to close this commercial loan.

Borrowers do not have to use their house as collateral.

It is very rare that a stated income loan will need to use the borrowers home as collateral.

Borrowers with less than perfect credit can qualify.

Borrowers with credit scores as low as 600 can qualify for these programs. If your credit is within 40 points of this number it is possible that you may have some mistakes on your credit that we can help you fix while closing your loan. So even if your credit does not meet the 600 number today, it may when we are done with your loan.

This article has been provided courtesy of commercialmortgage.net. Comm

When your little idea, your dream starts taking a real shape – you know it is time you garnered your finances to make it grow. At times your effort fall short and there you are filing for loans. Commercial loans can help business interests with uninterrupted capital supply.

Commercial loans can be used to buy business premises or commercial building for both new or establish businesses. They can be used to buy any business asset or to finance the expansion of any established business.

Different commercial loans lender have different way of processing commercial loans. You can start with pre-qualifying for commercial loans. This determines how much as a borrower you can afford as commercial loans and which commercial loans programme will suit the best.

Commercial loans are the biggest way of financing business projects. While providing you with commercial loans, the loan lender will look at general information as your income and existing debts. Your application will be reviewed by a loan officer.

Commercial loans lender will take keen interest in

o Credit history

o Reason for loan

o Collateral

o Ability to repay

o Your investment in the business

Documents to gather while applying for commercial loans are -

Loan request – the amount of loan requested, how the funds will be used, loan type and amount of working capital on hand. Commercial loans lender will feel more secure knowing that you have invested your own money in the commercial plan.

Business plan – If the commercial loans are used for starting a new business, the business plan is crucial. It should include cash flow projections for first 24 months. Information should be concise and clear. Its feasibility will be fundamental in getting commercial loans approved.

Personal financial statements – In case commercial loan is used for expansion of business, it will be required for you to give business profile. Personal financial statements would be required for anyone who owns 20% or more of business. Complete information about current debts balances, payment schedules, maturity, and collateral used to secure other loans. You can be required to provide more documents during the loan process.

In case you are purchasing real estate, you might be required to submit preliminary environmental reports, area maps, title reports, property appraisals, and lease summaries.

Decisions for commercial loans take usually 1-5 days. During this time, you might be required to give further information. Commercial loans broker can help you submit your loan application to several lenders for approval. Your job is to select the most attractive offer and returning the final letter of intent. After all the conditions are satisfied, the commercial loans are approved and the lender will give a final loan commitment. At the closing, the commercial loan will be transferred with a cashier’s check, draft, or electronic wire transfer.

Commercial loans are either secured or unsecured – with or without collateral. Secured commercial loans are more commonly available as commercial mortgages. Commercial mortgage are provided at better terms, interest rates and repayment options. Commercial loans are available with fixed and variable rate options. Fixed rate commercial loans will mean that your interest rate and monthly payments will be fixed at the beginning of the loan and will remain so throughout.

Businessmen apply for fixed rate commercial loans for it helps in effective financial planning because they know how much they are giving out every month. With variable rate the interest rates changes in accordance to the changes in the market. The benefit with variable rate is that they start with lower interest rate than fixed rate. But interest rate can increase during the term and therefore you will have to pay more. On the contrary fixed rate commercial loans will leave no space for change in case the interest rates drop.

Investigate before you make a commercial loan claim. Be prepared to answer some questions. Commercial loans are cost effective way of funding business needs when you need it. Commercial loans can strengthen your competitive position; increase your working capital and maximum profitability. Investigate your opportunities with commercial loans and see how your business becomes a commercial success.

After having herself gone through the ordeal of loan borrowing, Natasha Anderson understands the need for good quality loan advice. Her articles endeavor to provide you the wise counsel in the most elementary way for the be

The collapse of the Investment Banking Firm, Bear Stearns will cause massive lay-offs. How many is not yet known, but it could well be into the neighborhood of 12,000 or more, currently it appears they have somewhere just over 14,000 employees, but of course, they will no longer be needed, and looks as if their 401Ks may be completely depleted. Many of the Bear Stearns employees, will be laid off or terminated and that means a huge hit to the dismal job figures for the next quarter in the US economy, however the real pain will be to those employees who lose their jobs and will most likely be forced into foreclosure and bankruptcy.

What tips can we give those laid off Bear Stearns Employees who will be forced into bankruptcy? Well, first they need to get the proper paper work secured by a competent New York Attorney, and perhaps they can get a group discount as so many will be in the very same boat. Some of these employees will be left in a similar situation as those who were left in the wake Enron, as those at the top continued to water ski, while they treaded water. A New York style bankruptcy for a high-paid Bear Stearns employee could run as high as $8,000 to $30,000 and they will most likely need the best possible lawyer to help them through this troubling time.

Since, 30% of Bear Stearns stock is owned by its employees, and since that stock is now worthless, some of these employees are literally wiped out completely and will have no choice but personal bankruptcy. It is therefore important that they take immediate stock of all their personal assets, tax paper work, property assessments at the time of the collapse and what is left if anything of their 401K or stock portfolios. That is the advice that Wall Street Lawyers are giving today in the New York Times and that sounds about right to me.

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