Importance of a Commercial Loan Modification Firm
Commercial property owners slapped with foreclosure notices are taking aggressive measures to hold on to their assets. It is not that easy to acquire a property and to lose it just because of a few delinquent payments will not look good on their financial records. Values of real estate in the United States market have dropped over the past years. Owners are paying more on their mortgages than the actual value of their properties. Still, they might face the prospect of losing their assets to foreclosure. Hence, their best option is to seek a restructuring of their current loan for them to continue paying the mortgage in such a way that it is within their financial capacity.
However, lenders are not willing to just give up their stake but instead may sit down with borrowers to negotiate a win-win solution for both parties. Borrowers, on one hand, have to take calculated measures and treat this as their last recourse to keep their properties. To increase their chances of getting a restructuring approval, they should look for a commercial loan modification firm that can deliver the best results. A firm that is backed by years of experience in commercial properties can confidently show borrowers their way out from financial turmoil.
It should be kept in mind that the challenges faced by these firms and real property owners are far different from those they have dealt with in the past years. A record number of foreclosures has been made and a lot of other properties are not in a better position. Owners juggle mortgage payments and keeping their commercial properties performing despite the dire circumstances. Real estate has been said to appreciate over time but the global financial crisis has somehow belied this notion. Having these properties seem to be more of a liability than an asset because of the owner's constant struggle to come up with the monthly payments.
Commercial Financing for Special Purpose Business Properties
Funeral homes, assisted living facilities, campgrounds and other special purpose properties represent one of the most difficult commercial loan situations which will be confronted by a business owner. Unique properties are not easily understood by traditional lenders, so the most common solution involves finding a non-traditional lender for funeral home financing as well as commercial financing for other special purpose properties. Such non-traditional lenders will be appropriate for purchase situations as well as refinancing and new construction.
KEY REASONS FOR DIFFICULTY IN ARRANGING COMMERCIAL FINANCING FOR SPECIAL PURPOSE PROPERTIES
(1) By definition special purpose properties are not similar to other commercial properties. This makes many lenders uncomfortable due to the likely difficulty of finding another owner for a unique commercial property should it be necessary due to a loan default.
(2) For funeral homes and many other special purpose commercial properties, most of the business value is represented by non-real estate assets. With traditional commercial lenders that focus on commercial real estate loans, it is almost impossible to get a loan based on the real estate value and the business value. For example, it is not uncommon to have a situation in which the real estate for a funeral home is valued at less than one million dollars while the overall business value is in excess of three million dollars.
(3) Because commercial financing is so difficult to arrange for special purpose properties such as funeral homes, assisted living facilities and campgrounds, sellers of such properties are generally willing to provide substantial seller financing to assist the buyer in acquiring the business. However, many traditional lenders do not recognize or accept seller financing as a means of reducing down payment requirements for special purpose properties.
(4) Many lenders simply do not understand the business complexities associated with a special purpose property. As a result, it is not uncommon for these lenders to attach onerous and expensive requirements such as business plans and environmental reviews. In most cases such lenders do not even want to make the business loan but will use undesirable loan requirements as a means of appearing to approve a loan when in fact they have disapproved the loan by adding commercial loan terms that they do not expect a commercial borrower to accept.
COMMERCIAL LOAN SOLUTIONS FOR SPECIAL PURPOSE PROPERTIES
For a business borrower facing the situation described above, the highest priority should be to locate a non-traditional commercial lender that engages in the following commercial loan practices:
(1) Openly welcomes special purpose properties and routinely finances such properties.
(2) Provides commercial financing for both the business and real estate.
(3) Accepts substantial seller financing.
(4) Does not add special requirements to the business loan for special purpose commercial properties.
(5) Has a history of making loans for the specific type of property under consideration.
(6) Can accommodate both small and large commercial loans for special purpose commercial properties (for example, loans as small as $100,000 and loans as large as $5 million or higher).
Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.
Commercial Loan Workouts to Rescue Distressed Strip Malls From Foreclosure
For strip mall owners who are concerned that their properties may be foreclosed, salvation may come in the form of commercial loan workouts. These mini malls or shopping plazas are just some of the potential victims of the economic crisis because more people out of work means less sales and revenue for renters. The result is that a substantial number of these businesses may close shop or move to locations that allow them to have more customers. The exodus of lease holders will in turn cause a significant drop in the monthly income of the strip mall owners. For some, this is an unfortunate situation because their ability to make the mortgage payments may be severely affected and put the property on the troubled road to foreclosure.
What is needed is a strip mall loan modification that will make some adjustments to help the owner avoid default. Examples of these changes are the deferment of payments for a certain period of time, a decrease in the principal amount, and the reduction of interest rates. Meanwhile, because of the potential decrease in monthly payments, banks normally do not encourage a commercial loan modification.
This is understandable, especially when there is an unusually large number of applications for commercial loan workouts because of the poor state of the economy. This could result in drastic changes to the bank's business plans. Thus, the lender has the tendency to disapprove the request, unless the borrower is able to convince the bank that it would lead to better results than a foreclosure.
One of the strategies being applied by expert companies that offer their services to borrowers to make the negotiation process easier and less stressful is the use of a commercial loan audit. This is a vital step in the preparation process for negotiating with the bank. Here, the loan documents are carefully examined to find out if the lender had violated any laws that protect borrowers from unfair lending practices. This is an important step because it has been found that a substantial percentage of the loans that were offered during the boom period contained violations that were caused by the banks taking shortcuts. Because of the unusually large number of loan applications, the lenders often resorted to such shortcuts despite the fact that they are against certain laws.
When such violations are discovered, the negotiating power of the borrower would be increased. There are severe penalties for such violations, aside from the resulting inability of the lender to implement the provisions of the mortgage agreement. What this means is that the bank would be unable to foreclose the property and in the event that the foreclosure process has already been started, the court will order the lender to put it on hold until it has reached a decision regarding the case. Thus, armed with such knowledge, the borrower would be in a better position when requesting for a change in the payment schedule. The bank would be more than willing to carefully examine the possibility for an adjustment to the commercial mortgage.
Business Tip #2 – Tips For Loans
Taking out loans is nothing new, especially to help keep a business running. Many companies also have taken out loans to pay for a property, either a store front or an office space because with low interest rates, high foreclosure rates, and a large number of available places you can pay the same to own a property as you would pay to lease one. While this does come in handy as far as the overall value of a company, it does hurt you when you wish to move or lower your monthly bill.
During hard economic times many companies look first to spending less money. They cut back store hours, cut the employee staff and employees hours to help save. They also look at things like office supplies, electric, water, and any other thing they are billed for every month. Some companies have even gone as far as to fine employees who leave their computers on even after their shift is over. While these may seem like a lot of monitoring or changing of routine, they are effective ways to save money. Another very effective way to save money is to modify your loan.
When you own a place, unless you own it out right, you have to pay monthly bills for it. These can add up, especially because of finance charges, insurance, and interest rates. While many people would love to lower this bill, few take the time to actually try to. Commercial loan modification has been around for years and it works. Commercial loan modification companies go directly to the bank or lender to work out a deal that can save you money each and every month. They work fast and they work for you so you don't have to deal with the banks.
Commercial Loan Interest Rate – Negotiation Strategies
Cutting even a half a point off of a commercial loan's interest rate can save a business thousands - even millions - of dollars over the life of a loan.
It is possible to look to obtain a lower one for your business loan, whether the loan is existing or new.
Strategy #1
A good interest rate negotiation strategy is to obtain multiple quotes for your specific business loan request from at least two other lending institutions. This can create a "bidding war" provided your financials and company background are both sound.
Even if you've been with your current bank for years, notifying them that you are shopping for a lower rate can create a scenario where they step up to the plate to match or beat a competing offer. Since it is important to approach the bank in a way that will not offend them, if they are made aware that you are simply shopping rates in the best interest of your business they should fully understand.
Strategy #2
A business banking department relies very heavily upon having a healthy amount of deposit accounts. You can use this information to your advantage. Consider negotiating with the bank for a rate decrease in exchange for your agreement to maintain on an ongoing basis a certain dollar amount of deposit accounts with the bank.
There are many other negotiating tactics, and these are two that have proven to work in the past because they are in the bank's best interest. First, by warning that you are shopping for rates as opposed to going with another bank unannounced, you have put the bank in a position to be able to have the loan for themselves before it is lost to a competitor. The second strategy gives the bank great value by virtue of your agreement to maintain a certain level of deposit accounts with the bank.
Strategy #3
Another proven strategy that is in both the bank's interest and yours is to ask the bank if they are willing to present you with options. For example, you could see if they will give you the choice of a fixed interest rate or a variable interest rate. If you are able to convince three banks to give you rate options, you will be in a position to choose from at least 6 different scenarios for your business loan, rather than just the one that most borrowers are faced with.
These strategies can help a business to obtain a lower interest rate on a commercial loan.
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