Lenders to Avoid for Commercial Loan Working Capital Financing

Effective working capital strategies require that problematic lenders be avoided for commercial mortgages and commercial loans. Avoiding critical problems that involve lenders is critical for any small business owner seeking business financing.

One of the most serious commercial loan situations is a small business commercial lender that causes problems for their commercial borrowers on a repeating basis. Commercial borrowers should be prepared to avoid certain problematic commercial lenders unless alternative working capital loan options are impossible.

This article will not name specific lenders to avoid. This article will focus on how important it is to avoid lenders that cause the problems described below. We will provide several examples to demonstrate why commercial borrowers should be prepared to avoid a number of commercial lenders when seeking commercial mortgages and small business financing.

I have been advising business owners for many years, and I have encountered many commercial loan situations which have involved commercial lenders that I would not recommend as a result. This conclusion is typically based on an obvious pattern of lending abuses by select business financing providers.

As a first example of lenders to avoid, I have published an article which discusses the tendency of many banks to say "yes" when they mean "no". Such banks will typically attach onerous business financing conditions to commercial loans instead of simply declining the loan. Business owners should explore other commercial mortgage alternatives before accepting commercial financing terms that put them at a competitive disadvantage.

The second example of lenders to avoid involves the commercial appraisal process. For commercial mortgage loans, commercial appraisals are an unavoidable part of the commercial loan underwriting process. The process to obtain commercial appraisals is expensive and lengthy. Avoiding commercial lenders which have displayed a pattern of problems and abuses in this area will benefit the commercial borrower by saving them both time and money.

The third example of lenders to avoid is illustrated by those which provide worthless pre-approvals for commercial loans. Many borrowers think it is important to obtain a business loan pre-approval. The apparent result of the preliminary business financing approval is that it will allow the borrower to make other business commitments which are dependent on the commercial mortgage being approved.

Commercial borrowers should expect that a valid approval will not be regularly issued in a day or so. Any form of commercial financing approval will be treated as a binding action by ethical lenders. Nevertheless there are commercial lenders who provide their own special version of a pre-approval within just a few days of receiving preliminary application information. Because this abbreviated approach to pre-approvals almost always produces unexpected surprises for the commercial borrower as the business loan process goes forward, commercial borrowers need to be extremely wary of any commercial lenders that take this approach.

You might ask why any lender would use a misleading pre-approval for a commercial loan? Here are two primary possibilities. The first reason is to employ a pre-approval process that resembles the approach used for residential mortgage loans. A second reason is to cause borrowers to prematurely end their financing search due to the often false hope created by an artificial approval.

Since many commercial mortgage loans are arranged by residential mortgage brokers who are frequently unfamiliar with common commercial loan procedures, this reason will be especially applicable when dealing with commercial lenders that specialize in dealing with residential mortgage brokers. This type of commercial lender should be avoided at all costs for most business financing situations.

The fourth example of lenders to avoid is related to lack of sufficient lending competition. It is not unusual for the leading small business lender in some markets to use more restrictive commercial loan terms. This lack of other local lenders is often taken advantage of by such problem lenders. It is not wise for borrowers to rely upon local and regional banks for most business financing requirements. A non-local lender can frequently provide better business loan terms for most lending scenarios because they are routinely competing with other business lenders.

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