Business Loan Modification

 

 

Business loan modification is the process of restructuring the terms of a commercial loan to make it more favorable to the borrower. The need for business loan modification is quite evident from the fact that US streets are littered with “For Lease” signs and several commercial property owners are missing their mortgage payment dates.[br]

 

Following the credit crunch and recession of 2008, there has been a decline in property values and reduction in the rental income from commercial properties. This had prompted lenders to deny refinancing applications even from borrowers with good credit. Moreover, data from Deutsche Bank indicated that more than $153 billion of commercial loans will become due by the end of 2012 and there is a high possibility of $100 billion of loans not having the option to refinance.

 

Lower approval of refinancing applications and the current political and economic environment in the US are favoring the acceptance of commercial loan modification even by lenders who prefer to foreclose a building rather than modify the loan.

 

Also called commercial loan modification, the restructuring can involve:

• Negotiating a lower interest rate with their lender

• Extension of the loan term

• Deferring mortgage payments

• Reducing the principal balance of the loan

• Payment of only interest for a specific period 

Business Loan Modification: Choosing What to Change and When[br]

While opting for business loan modification, a borrower can choose to:

• Negotiate a lower interest rate with the lender when the commercial property is not generating sufficient income to repay the mortgage. Interest rate reduction will lower payments, allowing the owner to increase the cash flow of the building and service the debt when vacant units are filled. This step is ideal for owners of a property that has high vacancy rates.

• Extend the loan term to avoid hefty payments and reduce their monthly mortgage. Several commercial loans mature in one or two years, forcing the borrower to make large payments to pay off the entire principal within the stipulated time. While most lenders may consider extending the loan, it may be at a cost.

• Defer a payment to enable him/her to remain free from mortgage payment for three to six months. S/he can then use this time to build cash reserves or rent out vacant units.