Why the Bank May Not Renew Your Commercial Mortgage
Small business owners often face many obstacles when working to obtain a commercial mortgage. They may face additional difficulties in the future even if they do manage to get a bank loan. Many banks have the option to renew a commercial mortgage after a certain period of time. However, if the borrower has proven too great a risk, the bank may decide not to renew the loan and may demand payment in full.
Here are some common reasons banks do not renew commercial mortgages:
Credit issues:
Many small business owners faced tough times throughout the financial crisis, and their credit may show it. Those types of borrowers with bank loans up for renewal may find it hard to convince the bank to extend their loan, even if the credit issues have been resolved.
Cash flow issues:
If a borrower has had any cash flow issues throughout the life of the bank loan, they will have a hard time persuading the bank to renew the loan. Any lender will want to be sure that a borrower has the means to repay a loan, but banks are particularly risk averse.
Losses on taxes:
Banks want to be sure that a borrower’s business is doing well before renewing a mortgage, so if your borrower has posted losses on their tax forms, they’re in for a challenge even if they’ve resolved the issue.
Liquidity issues:
Banks want assets that can be sold quickly if there are major problems with a loan, so if the borrower’s property is no longer a liquid asset it will be difficult to convince the bank to extend their mortgage.