Can Banks call a commercial loan whenever they want?

Thorndale, PA · Member since 2017 · 68 posts · 15 votes

I came across a concern today about a bank being able to call on a commercial loan whenever they want. Is this possible? If so what can you do to prevent this from happening if you don't have the cash to pay? What are the chances of this happening?

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Jessica Zolotorofe

Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes

They can usually only call the loan if there is a default. Commercial loan documents should always be reviewed by a lawyer. They vary from bank to bank and I have never reviewed a set that didn't need to be negotiated and revised in some manner to protect my client. It's not like residential with form loan docs. If it had that general provision in it, I would not suggest a client sign, so it is definitely not the norm.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
You review the loan covenants before you purchase something and have the attorney take out or more highly define under which conditions the lender can call the note due.
Lenders tend to use boiler plate language. If you agree to the language then lender legal charges are generally smaller but if your attorney and the lenders attorney has to custom craft something then the costs could go over 10,000 in legal fees or more. It's all about how important some covenants are over others.
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Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
They can usually only call the loan if there is a default. Commercial loan documents should always be reviewed by a lawyer. They vary from bank to bank and I have never reviewed a set that didn't need to be negotiated and revised in some manner to protect my client. It's not like residential with form loan docs. If it had that general provision in it, I would not suggest a client sign, so it is definitely not the norm.
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Tim Milazzo
Lender · New Smyrna Beach, FL · Member since 2017 · 122 posts · 54 votes
9y
Looks like you got solid advice from @Jessica Zolotorofe. I'm not a lawyer, but just to reiterate simply, the answer is No. That is not common at any size bank or lender otherwise for a commercial loan.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
Mine have been adjustable (rate tied to an index +2% usually) and callable every 5 years. None of them have yet, but they also require you to submit your PFS and tax filings periodically (usually every year) to aid their decision whether to extend or not at the 5 yr mark. Some may be every 3. Rates and terms can vary widely in the commercial space so be sure to check around.
Even if you never missed a payment, they may decide to call it if they are anxious about your ongoing financial situation. This is why you must report to them, so they can monitor you.
I talked to US Bank this year about a commercial loan. They had the lowest rate at 4.75%,(20yr term) but the loan expires every 5 yrs. You have to completely re-qual at month 60 with new appraisal and everything. May be ok if you have a 3-5 yr exit plan, but was too risky for me. And there s no way I'm buying a $3500-ish appraisal on their behalf every few years.
I disliked the commercial loans and their reporting requirements so much that I made it my mission to satisfy them all as quickly as possible. I went from! 3 to 1 and that one last one ends in 2019. Looking back I am grateful they were available when I needed them, but freedom from grew in importance for me.
I had one hit the 5 yr mark in April and bother me to jump through a bunch of hoops so I paid them off with a private lender who happened to be holding the $175k in savings at that bank. LOL. The little bank lost $350k from their balance sheet. I would have paid on it happily for the remaining 10 yrs if they had just left me alone.
See 'A commercial mortgage bites the dust.' if you'd like. Good luck out there, Justin!
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Justin Westmoreland Chances are extremely low of it happening "randomly". Now, if you start quitclaiming property to an LLC or take other actions with it, that can be a different story. Odds are you signed a full-recourse loan so they might not care. However, you never want to "surprise" a bank with pesky things like ownership changes. I don't think any bank would want to call loans, especially arbitrarily. Reputations spread fast and nobody would go to them if they saw that as a potential risk. And they don't want to deal with your property. They want their money.
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