Commercial Financing

That happens as the result of the bank determining, according to FDIC regulations, that the collateral offered to secure the loan has deteriorated in value. That, in and of itself may not appear to be onerous. But those FDIC regulations also mandate that the bank classify the loan as non-performing. "Well, okay, so what?" Well, non-performing loans are called by the bank, meaning the borrower is given a short period of time in which to pay off the loan in full, or face the pains of foreclosure. If you're not following all that I've said so far, let me rephrase it. You have a loan from a bank, which requires you as borrower to make monthly payments in a specific amount on or before a certain date. To induce the lender to give you the loan, you agreed, as a condition of the loan, to give the bank certain land which you own and valued at not less than a certain amount, as collateral. The magic words are "valued at not less than a certain amount!" That certain amount is written into the loan and verified by a bank appraisal. During the term of the loan, the bank will have additional appraisals done. Each will determine the then current value of the collateral you provided to secure your loan. In most cases the property offered as collateral is the same for which the loan is obtained to purchase, but not always. At times additional property must be pledged as collateral. In either case, a performing non-performing loan is the result of a loan wherein all payments are made on time, but where subsequent appraisals determine the value of collateral to be less than that required by the terms of the loan. Well, so here you are with a service station you purchased in 1994, which was obtained with a bank loan, on which you have made all payments on time! And what happens but you open the mail one day and there is a form letter from your bank informing you that your loan is in default. "In default?" you say. "Well, that's a mistake!" "Impossible, can't be." "Why...I've made every payment on time." To the phone you go to call the bank. But who do you call? Panic starts to set in. You suddenly realize you don't have a friendly face at the bank. Your contact, the loan officer who approved your loan, lost his job when that big Boston-based bank bought your local bank. Here you've been doing business with this bank for three years and you don't know who to call. Down to the bank you go with notice in hand. You meet with a new face who introduces him/herself as a commercial loan officer. You explain your plight. They pull your file and verify that is isn't a mistake as you were certain it was. The bank recently had an appraisal conducted and the value was less than the minimum required by your loan documents. "What alternatives do I have?" you ask the loan officer. They are quick to tell you your options. Either pay off the loan or provide the bank with additional collateral to offset the deterioration in the value of the collateral originally provided. "Do you have other collateral you can provide?" they ask. The only other property you own is your house and between your mortgage and the home equity loan, which the same bank gave you to fund your children's tuition expenses, you are maxed out. Without additional collateral, your option is limited to paying off the loan. Rather than immediately foreclose on the property, which they have the legal right to do, they suggest that you enter into a "forbearance agreement." The essence of which is that the bank will forbear from foreclosing, for a limited period of time, in exchange for cash consideration. It is a fact that the cost and expenses of a forbearance agreement are similar to the cost associated with illegal loan sharking. They are structured to be fiendishly expensive so as to motivate you to obtain other financing. Ultimately, you must find additional collateral or procure financing from another lender without the same restrictions. Remember that non-bank financing is not governed by FDIC regulations. With such financing, a borrower will not be confronted with horror stories such as "performing non-performing loans." At Phoenix Management Group, LLC, financing efforts on behalf of our clients are directed to non-bank lenders, with whom we enjoy an exceptional relationship. They want and can quickly fund creditworthy service station loans. For more information on non-bank lenders or if you have questions concerning existing loans or require new commercial financing, remember to contact Phoenix Management Group.

*From NESSARA's NEWSBRIEF, July/August 1997, "Petroleum Industry Corner," Harold T. Panciera, Jr., CMC, Founder and Chairman of Phoenix Management Group, LLC