Business Loans Without Banks: 14 Reasons A Business Owner Might Not Go To A Bank For A Commercial Mortgage

By Stephen Bush

Traditional banks serve a very important role in the North
American economy. Nevertheless, when it comes to a business
loan, there are many reasons that small business owners should
not always use a traditional bank. There are not just one or two
major reasons to obtain a small business loan from another
source. As you will see below, there are over a dozen compelling
reasons to consider a source other than a traditional bank for a
small business loan. For most small business owners, five to ten
of these reasons are likely to be applicable to them.

With many small business loan borrowers, banks have already
declined their loan application. That particular compelling
reason to use a source other than a traditional bank (being
declined by a traditional bank) does not even appear on the list
below.

Here are 14 compelling reasons a small business owner might not
go to a traditional bank for a commercial real estate loan. The
compelling reasons shown below also indicate that for business
borrowers that can get approved at a traditional bank, there
might be better options available elsewhere.

Reason # 1:
Minimum commercial real estate loan for many banks is $250,000
or more. With non-bank small business lenders, the typical
minimum commercial loan amount is $100,000.

Reason # 2:
Most banks charge an up-front commitment fee. Most non-bank
small business lenders do not charge an up-front commitment fee
for a commercial mortgage.

Reason # 3:
Most banks will severely limit the amount of cash a business
borrower can get when refinancing a commercial mortgage. When a
borrower is refinancing their business property with non-bank
small business lenders, they can typically get up to $1,000,000
in cash.

Reason # 4:
Most banks are reducing their commercial real estate loan
interest in properties such as bars/restaurants, auto service
businesses and funeral homes. Non-bank small business lenders
are very interested in these business categories (and many other
special purpose properties) for a commercial mortgage.

Reason # 5:
Most banks will require business plans for a commercial
mortgage. The cost to provide this is usually several thousand
dollars. Non-bank small business lenders typically do not
require business plans as part of their underwriting process for
a commercial real estate loan.

Reason # 6:
Most banks will require tax returns for a commercial mortgage.
Non-bank small business lenders do not require tax returns or
any income verification for a Stated Income commercial real
estate loan. Many banks not requesting tax returns will ask
borrowers to sign IRS Form 4506 (which authorizes the lender to
obtain tax returns directly from the IRS). Non-bank small
business lenders typically do not request borrowers to sign this
form.

Reason # 7:
Most banks will require cross collateralization of personal
property for a commercial real estate loan. Most non-bank small
business lenders do not require cross collateralization of
personal property for a commercial mortgage.

Reason # 8:
Most banks will require balloon payments or the loan will be
subject to recall after periods as short as 3-5 years for a
commercial mortgage. With a commercial real estate loan via
typical non-bank small business lenders, all properties are
eligible for 25-year loans and some up to 40 years.

Reason # 9:
Most banks will not permit seller seconds or secondary
financing for a commercial real estate loan. With many non-bank
small business lenders, if the business borrower uses a seller
second or other secondary financing for a commercial mortgage,
the business borrower can obtain a loan with a CLTV up to 95% of
the property value.

Reason # 10:
Most banks require income verification or audits even after the
commercial real estate loan closes. Non-bank small business
lenders do not verify income either before or after a commercial
loan closes with a Stated Income Business Loan Program.

Reason # 11:
Most banks have strict guidelines for "sourcing" or "seasoning"
of assets or ownership to qualify for a commercial mortgage.
Most non-bank small business lenders do not have any
requirements or limitations involving sourcing/seasoning of
funds or seasoning of ownership.

Reason # 12:
Very few banks offer an assumable commercial real estate loan.
Typical non-bank small business lenders have an Assumable
Commercial Loan Program which includes loan amounts up to $1
million.

Reason # 13:
With most banks, a typical commercial real estate loan will
require 3 to 9 months to close. At typical non-bank small
business lenders, most commercial mortgage loans close in 45 to
55 days.

Reason # 14:
Very few banks use Stated Income (no tax returns, no income
verification) for a commercial real estate loan. Non-bank small
business lenders use the Stated Income Approach for commercial
mortgage loans in their Stated Income Business Loan Programs
(most commercial mortgages up to $2 million qualify for these
programs). This especially benefits self-employed small business
borrowers who frequently have income that is erratic and
difficult to document properly.

As noted above, there are many reasons that small business
owners should not always use a traditional bank. A recommended
follow-up to this article provides a review of the Top 12
commercial mortgage loan problems that small business borrowers
should avoid ( http://steve.bush.googlepages.com/home ).

© © 2005-2006 AEX Commercial Financing Group, LLC © All Rights
Reserved ©

About the Author: Steve Bush provides commercial financing
assistance throughout the United States and is the publisher of
The Commercial Real Estate Loans and Commercial Mortgages Guide
( http://aexcfgllc.com ) and The Credit Card Receivables Guide (
http://aexcfg.com ).

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