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So you're a small business owner and you need a small business loan
to further the objectives of your company. Where do you turn?
When it comes to a small business loan or commercial real estate loan,
there are many good reasons NOT to turn to a traditional bank. Here are some
of the most important. Many small business owners, will find most of these
points directly applicable to them.
"The bank turned me down"
Of course the biggest reason most small businesses go looking for alternative
sources of commercial real estate loans is because they have been declined
by the banks. Small businesses are often forced to look for other
sources of funding because the banks will not provide it. This is not even
listed below, since there are many positive reasons to prefer non-bank funding,
even if you can get approval from a bank.
Reason 1 - The minimum loan amount available from banks is too high
In many cases banks will not offer a commercial real estate loan for less
than $250,000. So if you only need $100,000 you will be pushed to borrow
more than you actually need. Or if your property will not support a $250,000
small business loan you are out of luck with the banks.
The solution is to look for an alternative funding source that can provide
a lower minimum amount. Some commercial financing services will go as low
as $100,000, and will often give you better terms and much better service
than the traditional banks.
Reason 2 - Many traditional banks will charge you an up-front "commitment
fee" just to examine and process your application
Banks usually think they are doing you a favor by processing your application,
so they will often make you pay for their attempts to win your
The solution is to find other established and credible lenders who are eager
to offer you better service without charging you a fee for processing your
Reason 3 - Most traditional banks will severely limit the amount of cash
you can get from a commercial real estate loan.
Banks usually have very narrow rules about where you can use the cash derived
from a commercial real estate loan. If you need a cash injection for your
business, or want to use the proceeds from a commercial mortgage as a down
payment for another property, most banks will not be interested in that type
of small business loan.
Look for a lender who does not restrict your use of the cash derived from
commercial real estate loans. Some services, such as AEX Commercial Financing
Group, LLC can provide commercial loans that give you up to $1 million in
cash to use however you want.
Reason 4 - Most traditional banks require detailed business plans before
approving a commercial real estate loan
Many small businesses have business plans, but they are usually not sufficiently
detailed to satisfy the banks. As a result, applying for a commercial real
estate loan from a bank can turn into a very time consuming and expensive
process. Creating the type of business plan that is adequate for the banks
will usually cost thousands of dollars.
Find a lender who does not require business plans as part of their underwriting
process for a commercial small business loan.
Reason 5 - Many traditional banks require tax returns for a commercial
real estate loan
If you are either unable or unwilling to provide tax returns for your business,
many banks will not give you a commercial real estate loan. Even some of
those banks that do not request tax returns will ask borrowers to sign IRS
Form 4506, which authorizes the lender to obtain tax returns directly from
When looking for alternative sources of funding make sure they do not require
either of these conditions (tax returns or access to your IRS records).
Reason 6 - Most banks will require cross collateralization of personal
Even though there is sufficient collateral in your business property to secure
a commercial real estate loan, many banks will require you to provide additional
security by putting up personal assets. Business people have become so used
to banks doing this that they just assume it is a necessity.
But the truth is, over-collateralization like this can restrict your personal
freedom to dispose of your personal assets as you see fit. And fortunately,
there are non-traditional lenders who do not require cross collateralization
Reason 7 - Most banks require income verification
Many small business people and self-employed borrowers have incomes that
are erratic and difficult to document. There are many legitimate reasons
for this, but traditional banks generally do not care. Very few of them will
provide commercial real estate loans or small business loans without
complete income verification.
An alternative used by some non-traditional lending sources is to use the
"Stated Income" approach. Look for a lender who uses the Stated Income approach
and does not require income verification.
Rick Hendershot is an online publisher. For online promotion ideas see Linknet
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