When most commercial borrowers apply for commercial mortgages and banks reject their application, they feel confused and lost because banks don’t bother to explain why they have turned it down.
However, we at Commercial Mortgage Link can help you with some expert advice to prepare against the five reasons banks use to reject applications for a commercial loan.
Reason #1: Unsatisfactory Business Plan
One of the most frequently asked question by commercial loan officers is, “Can you show me your business plan?” If the bank loan officer doesn’t feel that your business plan can support the loan you request, he or she will not approve the application. Therefore, before applying, make sure that your business plan can support the payback options for the long-term loan. Alternatively, find a borrower that will not ask for a business plan.
Reason #2: Problem with Tax Return
If the loan underwriter finds anything in the tax return that goes against the bank’s lending guidelines, the officer will decline the application. The most common problem in this case is a low or insufficient net income; however, there can be many other issues with your tax return. Therefore, before applying for the loan, make sure that you have a sound and flawless tax return.
Reason #3: Not Lending for Your Business Type
Some banks are choosy about businesses they are willing to support. They have special requirements for their borrowers to qualify; for example, very few banks are open to commercial mortgages for restaurants. Similarly, auto service businesses have several requirements to fulfill before they can qualify for the loan. Usually, funeral homes, churches, and campgrounds are not part of the business-lending portfolio in most banks.
Before applying for the loan, check to make sure that your business type is part of the business-lending portfolio of the bank you have chosen.
Reason #4: Lending Limitations Set By the Bank
Banks usually set limits on the amount of money that they can lend. Sometimes, they limit the amount of cash they can provide for your business to $100,000 and sometimes they outline what you can use the loan for and what you cannot do with it. In rare cases, the bank may approve the loan but they don’t provide the cash, which is the same as declining the loan.
If this happens, it’s better to look at other lenders. There are many available, so don’t limit your options.
Reason #5: Inadequate or No Collateral
No bank will provide a loan without collateral. The collateral must be adequate to serve as a lien of your personal assets, like a commercial borrower’s home. The best way to avoid this is to seek lenders that don’t put collaterals as a condition for you to obtain the business loan. This will help you avoid unnecessary problems.
At Commercial Mortgage Link, we offer our expert knowledge and insight into commercial mortgages to assist you to find the best options to support your business. You can speak to us for professional advice about your business plan and learn how you can apply for a commercial mortgage loan by scheduling a meeting with us. Call us on 0800-644-6420.
