Why a commercial mortgage app gets rejected

Traditional commercial banks often try to play things safe, and may be hesitant to support commercial projects considered too “unique.” Even commercial borrowers that have favourable tax returns and a sound business plan might find their applications for commercial mortgages denied. Worse, some banks will not even offer a good explanation as to why the applications were denied.

If you are looking to apply for a commercial mortgage, you might want to prepare yourself for the possible reasons banks reject applications.

Unfeasible business plans

Commercial loan officers will often ask applicants to show them their business plans. If your business plan does not seem like it can support the loan you are applying for, your application will likely be rejected. Make sure that your plan takes into consideration various payback options for the long-term loan you are applying for. Of course, you could always find a lender that is not too particular about your business plans.

Tax return issues

If the underwriter discovers something in your tax returns that violates the bank’s lending guidelines, he or she will decline your application in a heartbeat. Often, the problem might be related to low or insufficient net income, but other issues with your tax return may also raise some eyebrows. Ensure that your tax return has no problems before applying.

Lending limitations

There is often a cap to the amount of money a bank can lend. At times, a bank could limit the amount of cash it would provide you with, or even strictly detail what you can use the loan for and what you cannot. In exceptional cases, the bank might approve your loan but not lend you cash, which is as good as declining the loan altogether. If this happens to you, turn to another lender.

Insufficient or no collateral

Without collateral, the bank will outright refuse your application for a loan. Moreover, the collateral should be adequate enough to serve as a lien of your personal assets, much like with homeowners and their properties. If you have issues with this, choose lenders that do not require collaterals.

Source: Canadian Real Estate Wealth 27 Nov 2015

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