Your Options When Approaching Business Loan Maturity

For many companies, business loans represent one of several funding vehicles necessary to keep things going. Business loans of all types have maturity dates, those dates on which the loans must be paid in full. However, reaching maturity does not necessarily dictate the end of the line.

As a trusted hard money lender in Salt Lake City, we have worked with a number of clients facing business loan maturity. In such cases, clients usually have four options offered by the bank. We offer a fifth option. All five will be discussed below.

The Bank’s Options

Obtaining a business loan from a bank is difficult enough. Deciding what to do at maturity can be more challenging if a company’s cash flow is limited. Banks will generally offer one of four options at maturity:

1. Make the Final Payment

Business loans can be structured as fully amortized or not fully amortized. The former requires monthly payments that go toward both interest and principal. The latter applies monthly payments to interest, and perhaps some principle, but a balloon payment to cover the remaining principle is due at maturity.

As such, the first bank option is to simply pay off the loan. It is a fine option when the borrower has sufficient cash flow to make the payment. If not, it is on to one of the three remaining bank options.

2. Ask for an Extension

Banks will sometimes agree to short-term extensions when borrowers do not have enough capital on hand to make full payment. In some cases, automatic short-term extensions are written to the original loan contract. However, extensions are short-term by design. Banks are not always in a mood to extend loans well past maturity date.

3. Loan Renewal

This third option is reserved usually for revolving lines of credit. It is an option that simply renews the loan for another term. Revolving lines of credit in the commercial sector typically run for 12 months. Renewing a loan of this type would simply add another 12 months to the line of credit.

4. Refinance

The fourth option is the least desirable in most cases. First and foremost, banks are often reluctant to refinance business loans even though a borrower might have strong collateral. Banks are especially reticent when borrowers are not in compliance with their existing loan covenants.

The Hard Money Option

It has been our experience that refinancing a business loan is not always the best approach. Extensions are possible in some cases, but they will not give a business long-term relief. So if a borrower cannot make that final balloon payment at maturity, what’s next?

Hard money is a solid option that deserves attention. Hard money lenders, like Actium Partners, are flexible enough to consider lending for the purposes of paying off a small business loan. We base our lending decisions primarily on the strength of the borrower’s real estate collateral.

A hard money loan empowers the borrower to settle things with the bank. It gives a borrower time to re-calibrate finances and set aside the funds necessary to make full payment when our loan comes due. Best of all, hard money loans can usually be approved and funded rather quickly. Borrowers can get the money they need to satisfy their banks without having to wait weeks or months for a decision.

Does your company have an outstanding business loan that is fast approaching maturity? If so, we invite you to contact Actium Partners to learn more about why hard money might be the right option. If you have strong collateral, we can probably work something out.