Back to Basics for Commercial Real Estate Loans - By: Allan Michael Taylor

For any small business, the process of obtaining commercial real estate financing cannot be taken for granted due to the ongoing ineffectiveness of bank financing. A primary emphasis in this discussion about "getting back to basics" for commercial real estate loans is the need for small business owners to be prepared for an extremely difficult commercial lending environment. Small business borrowers are increasingly likely to have less resources and leverage than large corporations when negotiating with any bank.

We previously published a companion piece describing the need to get back to basics with working capital financing. In terms of the growing challenges with commercial refinancing, the main points made in that article are directly relevant to this discussion. 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. When commercial real estate refinancing cannot be obtained, commercial borrowers should consider a working capital loan as a secondary solution.

Very few banks have followed through on the assurances to return to a "normal" level of lending once they received bailout funding despite the apparent conclusion that the government bailouts helped to keep them operating. Effective commercial real estate financing is harder to find, and this has emerged as one key result of the changes and challenges involving commercial mortgages. 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 working capital finance for a wide variety of small businesses. In a particularly annoying (and growing) trend, banks are not generally being straightforward in telling prospective commercial borrowers when they have reduced their commercial loan activities. 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. It will frequently be even more difficult to secure a commercial mortgage from a new and unfamiliar lender if the current bank for a business is not willing to help. This undesirable business funding situation is currently confronting commercial borrowers on a widespread basis.

Another "new basic" that seems likely to become a regular fixture for commercial mortgage loans and business finance services is a reduced amount of leverage for most small business 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. Because the issues currently impacting commercial real estate loans are so widespread and effecting business borrowers everywhere, it is appropriate for business owners to "get back to basics" before they finalize any new business loans. The need to not only focus on the "old basics" but also on a series of "new basics" created by the massive shift in business loan services might be the most challenging aspect for commercial borrowers reacquainting themselves with the "basics" for commercial mortgage loans.

About the Author

Steve Bush and AEX Commercial Financing Group are a dependable source of business financing services - Steve has offered business finance consulting and commercial real estate loans for 20 years

Article Directory Source: http://www.articlerich.com/profile/Allan-Michael-Taylor/45501

Additional Articles From - Home | Finance | Real estate