The Basics Of The Commercial Loan Review

The owner of a commercial property, such as a shopping center, strip mall, apartment complex, office building and multi-tenant building, can collaborate with the bank or lender for a possible commercial loan modification.  This adjustment to the commercial loan may result into the reduction of the amount that is due, the temporary payment of interests only, the extension of the duration of the loan, or a decrease in the interest rates.  However, before the talks on possible modifications to the terms of the loan agreement can be held, the lender has to conduct a commercial loan review.  This review will include the analysis of the information regarding the borrower and the different documents.

The commercial loan review will involve both the borrower and the lender and is necessary before a commercial loan modification could be agreed upon by both parties.  It should be noted that the financial regulators are recommending loan workouts because they realize that most of the borrowers do not necessarily want to default on their loans but have only temporarily lost their abilities to come up with the originally agreed upon payments as a result of the economic situation.  A number of the commercial property owners only need a breather to recover from their present financial conditions while others may need a permanent change to the terms of the loan.  The loan workout will be advantageous to the borrower because it will forestall the repossession or foreclosure of the property.  It will benefit the lender because the expenses required a foreclosure are avoided and the payments will still be made by the borrower albeit at lesser amounts.  During the crisis in the commercial real estate market, the lender also avoids being stuck with assets that are very difficult to sell if a commercial loan modification is allowed.

The lender utilizes the commercial loan review to ensure that the business has the capacity to provide for the mortgage payments in case the adjustments are allowed.  Some of the factors that the bank or lender will look into during the procedure to determine the creditworthiness of the commercial property owner include the trend in the cash flow of the business, the payment history, market conditions, and the presence of guarantors.

From the point of view of the borrower, the commercial loan review process is quite different.  Loss mitigation attorneys and experts usually help the property owner in this procedure by carefully scrutinizing the various details of the original loan agreement.  The reason for this is that many agreements that were made during the times when commercial real estate was booming contained flaws or violations of laws and regulations that were created to protect the rights of the borrowers.  If such violations are discovered in the loan contracts, the lender would not be able to enforce all of the provisions found in the agreement, and this includes foreclosure.  The lender may even be required to return to the borrower the interests that have been paid from the beginning of the loan.  Therefore, the commercial loan review can provide the borrower with powerful negotiation tools that can hasten the lender’s approval of the commercial loan modification application.

Ready to learn more? Stop by and visit us at our commercial loan modification site. You may also want to check out our blog post on commercial loss mitigation.

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