Why is Using "Stated Income" for Business Loans and Commercial Real Estate Loans So Important to a Commercial Borrower?
At AEX Commercial Financing Group, the use of "Stated Income" for business loans and commercial real estate loans is a critical part in our strategy to avoid loan problems for our clients. Although we can also provide commercial real estate loans that are not "Stated Income", we strongly advise our clients against doing so unless their loan is larger than the prevailing limits for a Stated Income loan (we can typically provide loans up to two million dollars on a Stated Income basis).
Here is some background on what differentiates a Stated Income business loan from a conventional or traditional business loan. Very few traditional banks use Stated Income (no tax returns and no income verification) for a commercial real estate loan. Many/most commercial lenders will perform a thorough income verification as part of their underwriting process. This will typically include copies of tax returns as well as a requirement to sign IRS Form 4506 which authorizes the lender to obtain tax returns directly from the IRS. (At AEX Commercial Financing Group, we do not require tax returns or any income verification for a Stated Income commercial loan.)
IRS Form 4506 is routinely required by most traditional banks and many other commercial lenders. Some lenders require this form in addition to current tax returns. The more devious use of this form is when lenders make a point of not requiring tax returns but separately ask the commercial borrower to sign this form. The most common explanation in asking for this form will involve the words "routine request". This will usually occur just before the final closing and be further characterized as "one final small detail". In reality IRS Form 4506 is neither "routine" nor a "small detail". The use of this form is a lending practice that can have a potentially detrimental impact on a commercial borrower's financial interests. (At AEX Commercial Financing Group, IRS Form 4506 is never required for our Stated Income Business Loans.)
The value of using Stated Income does not end when the commercial loan closes. Many/most traditional banks require income verification/audits even after the commercial real estate loan closes. Most commercial borrowers won't believe this until it happens, but some commercial loans will have covenants stipulating that the lender must receive financial data even after the loan closing and that the loan can be recalled if the audit of this data is not satisfactory to the lender. (At AEX Commercial Financing Group, we do not verify income either before or after the Stated Income commercial loan closes.)
We have prepared a Special Report entitled "The Top 5 Reasons that Banks Decline Business Loan Applications and the Top 5 Strategies for Converting a Declined Loan into an Approved Loan". REASON NUMBER 1: Loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when loan underwriters look at tax returns, there are many other possibilities which produce a similar result. If the commercial borrower is applying for a Stated Income Business Loan, this situation will NEVER occur because tax returns will not be included in the commercial loan underwriting process.
Stated Income Business Loans are no longer just a strategy to get a commercial borrower qualified that could not qualify any other way. It is truly a vital method to protect the commercial real estate borrower's overall financial interests, both before and after the loan has closed.
Contact Information
Stephen Bush
Chief Executive Officer
Phone: (937) 780-4030
bush@aexllc.com
PO Box 353, Leesburg OH 45135-0353 USA
AEX Commercial Financing Group specializes in quick closings for difficult commercial real estate loans from $100,000 to $25 million and business cash advances up to $300,000 throughout the United States.
About AEX Commercial Financing Group
Copyright 1995-2008 AEX Commercial Financing Group and Stephen Bush.
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