Similar to the meltdown of the residential real estate loans in 2006, the Commercial Real Estate industry is already facing what will be a very similar situation. The difference? There's 1.4 trillion dollars worth of loans looking to mature in the next five years. What's worse is that a vast majority of these loans will be for amounts that far out-value the appraised value of the properties that back them. In other words, properties that are "upside down". Consequently, commercial borrowers are currently defaulting at a record pace and with the lack of financing available, they will all be facing a huge balloon payment.

The Ripple Effect

With the recession still plaguing the nation, more and more small business owners and tenants are going to go "Out of Business". Which in turn will cause commercial property owners to have less tenants. If the commercial property owners cannot refinance or obtain some kind of commercial loan resolution as mentioned before, they will have no choice but to default on the loan, leaving the banks with "underwater" commercial properties. A couple of years ago if a tenant's business did not flourish it was fine because there were plenty of other tenants looking for a "prime location" to start or expand their business. With this current economy, new tenants are extremely hard to come by, so these old tactics will not work any more.

Commercial Financing Options

Traditionally, borrowers have always relied on refinancing their existing loan when they found themselves going through hard times. However, today's circumstances have also changed the way banks even look at "credit worthy" borrowers, so there will be an abundance of commercial borrowers that will need other means to secure their loans. Getting denied can be a very isolating feeling when you feel there are no options left.

The good news is, there is something you can do about it.

Just because you are denied for the 504 and 7(a) SBA loans, banks are still willing to negotiate other terms, if you have the right presentation. Actually, in some cases these other options can be more favorable to you because of the following four factors…

1.) TERM EXTENSION: Certain properties that generate enough income to continue making their monthly payments, but have a high LTV (loan to value) percentage, can get the maturity date of the loan extended, thus allowing them to continue as they have been. 2.) AVOIDING FORECLOSURE: If you have already begun to get behind on mortgage payments you can ask for a workout or other resolution to keep the property. 3.) LESS STRINGENT GUIDELINES: Borrowers who have a good history of making payments are highly valued by lenders and they are willing to keep that relationship instead of starting a new one, so getting approved will be easier than if you were to start over. 4.) CASH FLOW: If there is a good positive cash flow, that is an excellent advantage to re-negotiating the loan.

If you take only one bit of information from this article then it should be that there are options for borrowers. Becoming more knowledgeable about these options will only benefit you in the long run. The simple truth of the matter is that banks are a business as well and as long as a feasible alternative is placed before them, they do not want to have to re-possess a property, especially a commercial property since it will be difficult to find a buyer. It makes sense for all parties involved to help each other in this continuing recession.

Learn more about Commercial Loan Modification. Stop by Jonas Reed's site where you can find out all about commercial financing and what it can do for you.