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How to Avoid Malpractice with Small Business Loans

By Stephen Bush

Republish: EasyPublish™ Published: 22Mar2008 Word count: 654 Viewed: 485 time(s) Get Free Content For Your Site

Malpractice in any activity typically occurs when there is a serious failure of professional duty. With borrowers seeking small business loans and commercial real estate financing, malpractice can occur with both commercial lenders and brokers for commercial loans.

During the opening segment of the television series Hill Street Blues, Sergeant Phil Esterhaus usually ended with a suggestion (let's be careful out there) that will also be helpful in avoiding malpractice situations involving working capital financing. Although that is a worthy goal, the actual practice of avoiding problems with business loans is somewhat difficult and complex. One of our most effective solutions for this dilemma has been to openly acknowledge that such difficulties exist and simultaneously provide detailed advice and strategies.

We have published a special report addressing one of the biggest recent causes of malpractice involving business financing and commercial real estate loans. Most commercial borrowers are probably aware that chaotic conditions started impacting residential real estate beginning about 12 months ago. This has produced problems for commercial borrowers since it has resulted in numerous former residential lenders and brokers now attempting to execute business loans because their previous residential lending activities have all but dried up.

Inexperience involving commercial loans is never a good thing when you are describing a commercial lender or broker. What borrowers need to be acutely aware of is that inexperience coupled with the complexity of business loans is likely to result in a recipe for malpractice in almost all cases.

Even though a broker or lender was superb at executing residential mortgage financing, please do not assume that they will also be good (or even marginally capable) when it comes to commercial mortgages, working capital financing or small business loans. We have prepared a series of reports which focus on over twenty critical differences between residential financing and business financing. In reality it takes years to master commercial loans.

Another common source of malpractice with working capital financing is currently seen with many agents for business cash advance programs. Most of these agents represent only providers for credit card receivables financing and simply do not understand business loans in general. They are focused on only the narrow but important service that they provide and are not capable of assisting with other forms of business financing.

Although it might not be obvious to most business owners, the malpractice potential with business cash advances is also directly related to the first example described above involving inexperienced brokers and lenders. In many cases throughout the United States, call centers that previously focused on residential real estate loans have simply switched their focus to merchant cash advance programs. Once again inexperience is never a good thing when complicated working capital management services are involved.

A final example of malpractice exposure involves SBA loans and specialized forms of commercial real estate loans. Although many commercial lenders seem to suggest that they can do SBA financing, in reality very few do what they claim. One major business financing lender ceased most business operations during the past year because of apparently fraudulent SBA loan activities.

Specialized commercial property such as funeral homes, gas stations, bowling alleys and golf courses have always been recognized as problematic for commercial loans. For example, one prominent provider of funeral home financing is the subject of multiple lawsuits regarding their irresponsible commercial funding activities.

Commercial borrowers should rightfully conclude that an important step in avoiding potential malpractice circumstances might simply be to avoid certain lenders and brokers. We would agree wholeheartedly, and in fact published a special report some time ago dealing with the need to avoid problem brokers and commercial lenders.

As serious as the three examples of malpractice described above are, they are truly just the tip of the iceberg when analyzing potential obstacles for business loans and working capital loans. Our advice is meant to reinforce the importance and value of being prudent in pursuing commercial loans.

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