Issue link: http://www.insightdigital.biz/i/252322
30 | I nsIgh t • F e b r u a r y 2 0 14 w w w . i n s i g h t o n b u s i n e s s . c o m i n s i g h t o n CommerCial l e N D i N G B y To m G r o e n f e l d t S ome business owners are getting a shock when it is time to renew their commercial loans and find that the reduced value of their property may require them to come up with more cash or a restructuring of the loan. Lon Rupnow, vice president for business banking at American national Bank in Appleton, says the bank requires a valuation on a property before it renews a loan. Bankers agree that new valuations are largely a waste of time, although some regulators require them before a loan is renewed. Property prices are down from five years ago, and that isn't a surprise, but lenders focus on cash flow and the business owner. "When we did a loan five years ago and got an appraisal, the way we underwrote it was fine with good cash flow, adequate collateral, the loan is still performing and payments have never been missed," says Rupnow. now the loan has matured and it makes little sense to get another price evaluation, he adds. "We know the value will be lower because commercial real estate values have dropped, but that is our secondary source of repayment when we underwrite. e primary concern is the character of the borrower and cash flow. Collateral is only important when everything fails and we have to sell it." If residential property is included in the collateral, the bank gets an evaluation on that as well. sometimes the bank may require additional collateral. e bank can restructure the loan to help a business over a short-term setback. On a loan with a 20-year amortization and a five-year term, if the owner has problems making payments in the third year, the bank could make some of the loan interest- only for a period. A business with a $1 million, 20-year loan which had been paying $5,000 a month may have lost a tenant or seen a slowdown in business and can pay only $2,000, Rupnow explains by way of example. e bank might restructure the loan to a $500,000 loan and charge off the remaining $500,000 by putting it on a B note. now instead of listing a $1 million troubled loan, the bank is reporting a $500,000 troubled loan, although the owner is still liable for the full amount. Proactive approach Cash flow, character, collateral more important than valuations when bankers refinance commercial property