Owners of commercial properties, such as warehouses, apartment complexes, strip malls, shopping centers and retail shops, can take advantage of commercial loan modifications if they find that their cash flow is not sufficient for the monthly payments. However, it should be noted that one requirement for a loan restructuring is a commercial loan review. Both parties have their own agendas for a review so that a loan workout can be agreed upon that would be beneficial for all. For the borrower, this review is required to analyze the various details of the original loan contract to discover any violations made by the lender against certain regulations. On the other hand, the lender will require a commercial loan review to assess the capability of the borrower to repay the loan after a loan restructuring.
The lender may allow negotiations for a loan workout only after a commercial loan review has been conducted to assess the ability of the business or individual to come up with the installments in the event that they are adjusted. This particular review will examine various data with regards to the borrower, such as the payment history, the business cash flow, and whether there are any guarantors. This review is one of the factors that the lender will consider when deciding whether to approve the loan workout or not. Basically, what this means is that there is no sense in wasting time negotiating and then approving the adjustments if the borrower does not have the capacity to keep up with the payments.
Meanwhile, a commercial loan review has a vital and different purpose for the borrower. Usually, loss mitigation professionals and experts are hired by the property owner to scrutinize the original loan agreement to check if there are any indications that some laws and regulations had been violated. During the boom years when commercial loans were being approved in large quantities, many lenders had taken some shortcuts and had neglected to comply with laws that were established to protect borrowers from lender abuse. If such violations are found in the contracts, the banks would not be able to implement any of the provisions that are contained therein, including foreclosure. Thus, this is a vital negotiating tool for the borrower that could facilitate the approval of the application.
A commercial loan review may also be helpful when foreclosure proceedings have already been started. If any violation is found in the original agreement, the court may order that the foreclosure process be stopped until such time that a decision has been rendered on the allegations. The property owner may even halt mortgage payments although it is advisable to set aside these payments and let them accumulate in a separate account, just in case the court rules in favor of the lender.
Thus, a commercial loan review is essential for both lender and borrower although they have different purposes. For the lender, it is a tool for evaluating the creditworthiness of the borrower but for the borrower, it is a negotiating tool in the event that violations are discovered in the original loan contract.
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