Where Commercial Loan Modification Can Help When You Are Denied Financing - Four Key Factors | Mortgage

Where Commercial Loan Modification Can Help When You Are Denied Financing - Four Key Factors

by GeorgeLeonardi

There is no further denying that the bubble is about to burst for the Commercial Real Estate market as it did for the residential market back in 2006. In the next five years, it is anticipated that $1.4 trillion become due on a majority of commercial loans. Most of which will find themselves "upside down," where the amount of the loan on the property is more than the actual value of the property itself. Consequently, many commercial borrowers are already in default of their mortgage payments facing a huge balloon payment with no further financing available.

The Ripple Effect

The economic downturn continues to affect the real estate market and this has been made very apparent by all the "For Lease" and "Going Out Of Business" sign going up everywhere. The effects of this of course, is a decrease in occupancy rates of commercial properties. This in turn puts a huge burden on commercial property owners when they attempt any of the refinancing routes mentioned previously. When these borrowers begin to default that will leave the banks with "underwater" commercial real estate. Not too long ago if a tenant happened to leave, there was a line of potential tenants just itching for a "prime location" to grow their business. Once again, the unique times we live in have made all these former tactics practically null and void.

Options for Commercial Financing

As mentioned previously, refinancing has always been the quick answer for commercial borrowers in a "pinch". This is impossible today when even "credit worthy" borrowers find themselves strictly scrutinized by their lenders. Needless to say that leaves many would-be borrowers in desperate need of a solution. Many of them feel alone and isolated in a no-win situation.

The good news is, there is something you can do about it.

Just because you are denied for the 504 and 7(a) SBA loans, banks are still willing to negotiate other terms, if you have the right presentation. Actually, in some cases these other options can be more favorable to you because of the following four factors...

1.) TERM EXTENSION: This is exactly as it sounds. It will give you more years to pay your loan balance which can actually lower your monthly payment in some instances. 2.) AVOIDING FORECLOSURE: Borrowers who already behind on their monthly payments can try to negotiate a loan workout or resolution so as not to lose the property. 3.) LESS STRINGENT GUIDELINES: Current borrowers are actually favored by lenders because of the history of doing business, and if there is a way to restructure their loan so that everyone benefits, the borrower will have an easier time getting approved than if they were applying for a new loan. 4.) CASH FLOW: Properties with a positive cash flow will always be an asset to banks and as long as this profit can be proven to continue that will be in the buyer's favor.

Just remember there are other options out there. So when you are looking for these options make sure that you have a clear explanation on the process and what it entails. The banks look at commercial properties as a business and they do not want to reclaim the property if they don't have to. Lenders are willing to sustain a small loss for a temporary time line. They do not want to take a huge loss and hold the property. In this market it makes more financial sense to help borrowers that to try and sell the property.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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