Throughout the country, there are many small business owners who are turned down by their local bank when they request financing. As a commercial mortgage broker, it’s important that you understand the reasons for a bank turndown, as well as what to do when your borrower can’t obtain traditional financing for their commercial property. Here are the most common reasons why your borrower may be turned down by their local bank:
Your borrower has past credit issues.
Banks have strict guidelines when it comes to the credit of their potential borrowers. If your borrower has had credit problems in the past, they probably won’t be a good fit for a bank loan. However, there are lenders who understand that a borrower is more than their credit score and are willing to listen to your borrower’s story.
The bank has lending limits.
Banks, like any lender, have minimum and maximum loan limits. For many small business owners who don’t need a large loan, this can be problematic, as there’s a good chance they won’t meet the minimum loan limit. Most banks don’t see small-balance commercial mortgages as profitable, so they simply don’t offer them. If your borrower needs a small-balance mortgage, a non-conforming commercial lender is going to be your best bet.
The bank doesn’t lend on your borrower’s property type.
Borrowers with smaller commercial properties might find it tough to secure bank financing, since banks don’t generally see these buildings as a profitable investment. This also applies to unique property types, such as funeral homes, storage facilities or mobile home parks. If your borrower has a commercial property like these, it’s best to submit the loan scenario to a small-balance commercial lender.
Your borrower has tax issues.
Banks use tax returns to underwrite their loans, so if your borrower doesn’t report all of their income, they might have a difficult time convincing a bank that they can repay the loan. Likewise, if your borrower is looking to resolve ongoing issues with the IRS, they won’t be able to get a bank loan. A small-balance commercial lender can be a great solution in a situation like this.
While there are plenty of reasons for the local bank to deny your borrower a commercial mortgage, the above are the most common. Once a borrower has been turned down for traditional financing, they’ll be looking to you as an experienced commercial mortgage broker to find them a commercial mortgage that fits their needs. If your borrower’s situation resembles any of the above, it’s best to submit the loan scenario to a small-balance commercial mortgage lender who specializes in non-bankable borrowers. A lender like this will listen to your borrower’s story and help you to close the loan.