Back To Basics For Commercial Mortgage Loans

The need for small business owners to be preparedWe previously published a companion piece describing
for an extremely difficult commercial lendingthe need to get back to basics with working capital
environment is a primary emphasis in this discussionfinancing. The points made in that article are directly
about "getting back to basics" for commercial realrelevant to this discussion in terms of the growing
estate loans. Because of the recent ineffectivenesschallenges with commercial refinancing. Even though a
that continues to prevail with commercial banking,small business owner might feel that they can obtain
obtaining commercial mortgage loans can no longer beneeded cash by refinancing an existing commercial
taken for granted by small businesses. Small businessmortgage loan in which they have substantial equity,
borrowers are increasingly likely to have lessany current effort to refinance a business loan is likely
resources and leverage than large corporations whento be much more difficult than expected. When
negotiating with any bank.commercial real estate refinancing cannot be obtained,
Very few banks have followed through on thecommercial borrowers should consider a working
assurances to return to a "normal" level of lendingcapital loan as a secondary solution.
once they received bailout funding despite theA reduced amount of leverage for most small
apparent conclusion that the government bailoutsbusiness loans is another "new basic" that seems likely
helped to keep them operating. One key result of theto become a permanent fixture for commercial
changes and challenges involving commercialmortgage loans. Needing larger down payments to buy
mortgages is that effective commercial real estatea business will be one result for borrowers.
financing is becoming harder to find. This observationCommercial debt refinancing will be more difficult
applies equally to new commercial loans for buying abecause of the reduced leverage, especially when
business and commercial refinancing efforts. Acombined with decreasing commercial real estate
dramatic reduction in the number of banks providingvalues currently being experienced on a widespread
this kind of financing to small businesses is onebasis.
inescapable "new basic" for commercial real estateThe most challenging aspect in commercial borrowers
loans. It will frequently be even more difficult to securereacquainting themselves with the "basics" for
a commercial mortgage from a new and unfamiliarcommercial mortgage loans is likely to be the need to
lender if the current bank for a business is not willing tonot only focus on the "old basics" but also on
help. Nevertheless that is a likely funding scenario thatnumerous "new basics" created by a massive shift in
currently confronts business borrowers everywhere.commercial loan services. There have been surprising
To make this challenge even more difficult, very fewdifficulties and changes for small business financing,
commercial lenders are providing a candid assessmentand this is particularly illustrated by the current
of their inability to provide commercial mortgagecommercial banking climate for commercial mortgages.
financing for a wide variety of small businesses. In aBecause the issues currently impacting commercial
particularly annoying (and growing) trend, banks are notreal estate loans are so widespread and effecting
generally being straightforward in telling prospectivebusiness borrowers everywhere, it is appropriate for
commercial borrowers when they have reduced theirbusiness owners to "get back to basics" before they
commercial loan activities.finalize any new business loans.