Business Loans India : Five strategies for approval of commercial loan
When lenders disapprove commercial loans, business owners need to be prepared to take appropriate action. Because rejected commercial real estate loans are common, it is important for borrowers to have an alternative strategy for obtaining business loans.
Business owners are likely to be distressed when a commercial loan application is turned down and will be unsure as to why it took place and how to avoid a similar problem again. For each of the five primary reasons that a commercial lender might decline commercial real estate loans, a practical solution is suggested for transforming the rejected commercial funding into approved business loans.
Two reasons (tax returns and business plan requirements) could impact virtually all commercial loans. Many loan officers will begin their review of potential commercial real estate loans by stating “We will need to see at least three years of tax returns” and “Can you show me your business plan?” before proceeding.
The five major issues described here are very common problems encountered by business owners. It is likely that two or three of the reasons described will be important for typical commercial real estate loans.
(1) Commercial Real Estate That is Used for Special Purposes. The first key reason for rejection of business loans will be due to lack of lender interest for specific business categories. As one illustration, very few commercial lenders will provide financing for bars and restaurants. In a similar fashion, an auto service business is often given expensive and unnecessary environmental stipulations. There are many special purpose commercial properties such as campgrounds, churches, funeral homes and gas stations that most traditional lenders have eliminated from their commercial lending program.
(2) Tax Returns. Reason number two for commercial loan disapprovals is when loan officers find a problem on an income tax return that disqualifies a commercial borrower under the bank’s loan guidelines. This “problem” will typically be related to net income after business deductions, but when loan officers review tax returns, there are many possibilities which will result in the same outcome.
(3) Cash Out Limitations. The third reason for rejection of business loans will be seen frequently during refinancing attempts which involve a need to obtain cash by the borrower. It is common for a traditional commercial lender to limit what the funds are used for and to restrict the amount of cash. Borrowers should realize that the bank is essentially disapproving the loan when they refuse to provide adequate cash to the business owner.
(4) Collateral Required. Reason number four for commercial mortgage loan disapprovals is that the bank will not make a commercial loan without sufficient collateral such as a lien on personal assets.
(5) Required Business Plan. 0Reason number five for commercial mortgage disapprovals is when a bank’s loan officer determines that the business plan does not support the needed commercial loan.