Commercial Mortgage Property | 5 Reasons Lenders Refuse to Finance a Commercial Mortgage Property
While there are thousands of potential lenders for your commercial property, all of these lenders have very strict policies about who they’re willing to lend their money to. Commercial mortgages are simply too substantial an investment with too much risk involved, and so lenders are careful about who they decide is worthy of a loan, and who they believe is not.
That’s why on the path to receiving your commercial mortgage property, it’s not uncommon to run into rejection along the way. The following are some of the most common reasons your loan may fall through.
Reasons for a Rejected Commercial Mortgage Property Loan
- Incomplete or Unconvincing Business Plan
For commercial mortgage lending, the business plan cannot be an afterthought. Lenders have to genuinely believe that your business the plan is going to be successful, or you need to find a lender that will not require a business plan.
- Property Revenue/Net Operating Income is Suspect
Lenders frequently reject loans because the net operating income doesn’t seem accurate or profitable enough. Lenders are hoping to see proof that you can generate enough revenue to pay back the loan, and that often includes proving that you’ve accounted for every possible expense and a realistic expectation of revenue generated.
- Lenders Focus on Industries
A lot of lenders prefer to only provide loans to the industries they know intimately, like hospitality. While they may claim to offer loans to all types of properties, they may specialize in specific industries and be hesitant to provide loans if your property is not considered exceptional. In these cases you may need to seek out lenders that understand your specific property type.
- Environmental Issues
Loans are often dependent on environmental analysis, and this is an area that borrowers are often unfamiliar. If your property appears to have any environmental contamination, it creates a liability for the lender for legal reasons and turns the asset into risky collateral in the event you fail to make payments.
- Little Things
Finally, with commercial lending everything is accounted for. Unfortunately some of these rejection reasons may be difficult to avoid. For example, a commercial mortgage property can be rejected simply because it is an eyesore, or isn’t large enough to handle the growth of a business (or is too large and may be difficult to fill in your local area). Little things that may not seem like a big issues could cause problems with the lender.
Working Towards Commercial Mortgage Property Loan Closure
Rejection can hurt, especially because it’s difficult to tell when loans are rejected for reasons that may occur in the future. Often one of the ways around rejection is to shop your loan at multiple locations at once, submitting your information to lenders and seeing who is interested.
At CRE Lender, we want to help you do whatever it takes to avoid rejection, putting you in contact with thousands of lenders and finding those that are willing to take on your loan. We treat you like you want to be treated, and we treat your loan like it’s our own. Sign up today to start receiving information.
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