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SpinDistribute.com Article Directory

The following article was published in our article directory on April 27, 2010.
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Back to Basics for Commercial Real Estate Loans

Article Category: Finances

Author Name: Stephen Bush

Obtaining commercial mortgage loans can no longer be taken for granted by small businesses because of the recent ineffectiveness that continues to prevail with commercial banking. This discussion about "getting back to basics" for commercial real estate loans reflects the increasing need for business owners to anticipate a challenging environment for commercial lending. Large corporations continue to have much more leverage than small business borrowers when it comes to bank loan negotiations.

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

Despite a conclusion that the government bailouts helped to keep them operating, very few banks have followed through on assurances to return to a "normal" level of lending once they received bailout funding. One key result of the changes and challenges involving commercial mortgages is that effective commercial real estate financing is becoming harder to find. 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. If the current bank for a business is not willing to help, it will frequently be even more difficult to secure a commercial mortgage from a new and unfamiliar lender. This undesirable business funding situation is currently confronting commercial borrowers on a widespread basis.

A reduced amount of leverage for most small business loans is another "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.

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.

Keywords: commercial property loans,commercial mortgages,finance,small business,real estate

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