Avoid Commercial Real Estate Loan Mistakes

Avoiding critical commercial mortgage mistakes is an important but potentially difficult requirement in obtaining appropriate business finance terms. Commercial borrowers should expect to secure improved commercial loan terms and avoid potentially devastating commercial real estate financing problems by taking some extra time and caution when using specialized investment financing.

While we will not be addressing all possible commercial mortgage mistakes in this article, we will include several of the most severe issues to anticipate. The problem areas described below are typically more critical than expected by most business borrowers.

Inexperienced Business Finance Brokers and Lenders -

Commercial mortgage financing has recently become more popular with brokers and lenders that previously focused on residential real estate financing. More and more lenders and brokers are looking for alternative revenue sources due to residential financing difficulties. Many of them are devoting increased attention to business finance and investment loan services.

While this shift might eventually result in a positive outcome for commercial borrowers, the immediate impact is a sudden influx of inexperienced residential mortgage brokers and lenders attempting to provide investment advice for business financing and commercial real estate financing. For most business borrowers, the use of inexperienced business finance advisors will be a mistake of potentially serious proportions. As we have written about extensively, there are approximately 25 major differences between residential financing and commercial financing, and most residential financing experts are simply unprepared for business loan complexities.

SBA Loan Refinancing for a Commercial Mortgage -

Because it is more difficult to refinance an SBA loan or conventional commercial mortgage than many borrowers realize, it is advisable to thoroughly review refinancing options before completing the initial business financing if at all possible. The biggest potential business finance mistake involving an effort to refinance is likely to be an assumption that refinancing can be easily accomplished and whenever the commercial borrower chooses.

In reality most business and commercial mortgage refinancing situations will require less attractive terms than the initial business financing. This is especially true with SBA loan refinancing because the acquisition financing contains features that will not be available when refinancing. Another potentially critical mistake is to overlook short-term business financing options which will eliminate refinancing problems.

A major obstacle to refinancing a commercial mortgage, whether it involves an SBA loan or not, will be prepayment penalties and other financial restrictions that effectively prevent refinancing for several years. Even though there are practical reasons to seek long-term business financing, shorter-term options should not be overlooked if the borrower wants more freedom to refinance in a relatively short period of time such as the first three years of a commercial loan.

Specialized Commercial Real Estate Investment Property Issues -

With more specialized commercial properties and investments, the potential for serious mistakes increases substantially because of the advanced business financing complexities. Commercial mortgage loan choices are also likely to be more limited because there are fewer lenders which will provide this kind of specialized commercial real estate financing.

From a lending perspective, office buildings, apartments and retail stores are less specialized. This is due to the likelihood that potential users and renters of such properties are more interchangeable than for a business investment involving specialized uses such as a funeral home, golf course and gas station.

The business finance costs for more specialized properties are likely to be more variable and unpredictable than for office buildings, retail stores and apartments. For example, environmental and appraisal requirements for properties such as funeral homes and gas stations will be extensive and time consuming.

Solutions and Strategies for Avoiding Business Financing Mistakes -

The potential business finance mistakes described above can be overcome successfully. Commercial borrowers should look for resources which will provide relevant strategies and solutions for a business owner contemplating business purchase or refinancing as well as facilitate a better understanding of complex commercial real estate financing issues. Business borrowers should thoroughly discuss business financing options with a business loan expert before refinancing or buying a commercial property or business investment.


Steve Bush is a commercial mortgage and business finance expert. Find out how AEX Commercial Financing Group can help with SBA loan refinancing and other difficult commercial real estate financing at => http://aexcommercialfinancing.com

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