Mission Impossible Loan Episode #15: Business Loan Declined? One Lender’s No May Not Be the Final Answer
A successful business. Strong income. Excellent credit. Money in the bank. And an attractive loan proposal is already in hand.
What could possibly go wrong?
For one of my clients, the answer was something that had happened approximately 15 years earlier.
This is one of my favorite Mission Impossible Loans because it demonstrates an important lesson for business owners who have experienced challenges:
One lender can say no to your history without every lender saying no to your future.
The Perfect Property for His Business
Jeff was a previous client of Angela, one of my colleagues in Southern California.
Angela had helped Jeff obtain attractive home financing when COVID pushed mortgage rates to historic lows. He appreciated her efforts, so when he found another property, he wanted to purchase, he called her again.
But this wasn’t going to be an ordinary home purchase.
Jeff owned a successful tree-service company that had been operating for decades. His company served residential and commercial customers and owned trucks and expensive equipment that needed somewhere secure to be stored.
The property Jeff found seemed ideal.
It included a house along with a large lot where he could park his company’s trucks and equipment.
His longer-term plan was to rehabilitate the house and allow one of his employees and the employee’s family to live there.
There was a practical reason for that plan.
The property was attractively priced, but it wasn’t in the best part of town. Having someone living there would provide constant occupancy and help prevent Jeff’s trucks and equipment from “walking off in the middle of the night.”
The purchase made sense for his business.
Angela initially thought the financing would be relatively easy.
Then she discovered the property had commercial zoning.
This Wasn’t Going to Be a Home Loan
The commercial zoning changed the financing strategy.
Jeff had heard about real estate loans guaranteed by the Small Business Administration (SBA) and thought SBA financing might provide the answer.
Angela initially contacted a local commercial lending source she’d been introduced to.
That didn’t go particularly well.
The lender was neither especially helpful nor particularly interested in finding a solution.
Angela contacted me instead.
I had already emailed her some initial thoughts about possible next steps, and they seemed to make sense for both Angela and Jeff.
So I took the initiative and sent Angela my SBA loan checklist.
Welcome to SBA Lending
Business owners accustomed to residential mortgages can be surprised by the documentation involved in an SBA or commercial real estate loan.
Tax returns are only the beginning.
Depending upon the transaction, lenders may need business and personal financial information, Profit & Loss Statements, Balance Sheets, bank statements and other documentation to evaluate both the borrower and the company.
Having a good relationship with the borrower’s accountant can make an enormous difference.
Fortunately, Angela had already organized much of Jeff’s information.
And Jeff looked like a terrific borrower.
His company was profitable.
His tax returns showed strong income.
His credit history was excellent.
He had money in the bank.
Everything seemed to be going our way.
Two Days Later, We Had a Great Loan Proposal
I submitted the package to Marco, one of my strongest SBA lending contacts.
He received the tax returns, Profit & Loss Statement, Balance Sheet, recent credit report and bank statements showing Jeff’s available funds.
Within two days, Marco produced a loan proposal with very attractive rates and terms.
Angela and I were excited.
Jeff would be happy.
Now it was time to complete the formal loan application and required SBA paperwork.
I sent the documents to Angela so Jeff could complete them and return them.
Then something strange happened.
Nothing came back.
“There Had Been an Accident”
About a week later, I called Angela to see whether she or Jeff had any questions.
She told me there was a problem with the application.
There was an accident.
The conversation initially became so convoluted that I thought Jeff had just been involved in an accident.
Fortunately, Jeff was safe and sound.
The accident Angela was referring to had happened approximately 15 years earlier.
And the business-loan application and background-review process had brought the events surrounding it back into Jeff’s financial life.
That caught Angela completely off guard.
She had already helped Jeff obtain residential mortgage financing. But residential and commercial underwriting can be very different. Business-purpose and SBA transactions may involve eligibility questions and background reviews that don’t arise in the same way during a conventional home mortgage.
Jeff had a criminal history that needed to be disclosed.
And that created an enormous problem.
The Accident Had Uncovered Something Much Bigger
Approximately 15 years earlier, one of Jeff’s employees, Gary, had been killed in a horrific workplace accident after falling into a woodchipper.
OSHA investigated Gary’s death and determined that it was an accident.
But the scrutiny of Jeff’s company didn’t end there.
Subsequent investigations uncovered other serious issues.
Workers’ compensation investigators discovered that some employees had been paid in cash rather than properly reported as employees.
The Franchise Tax Board and Internal Revenue Service became involved.
Authorities also discovered an assault weapon.
What began with the investigation of a tragic workplace accident eventually resulted in an extensive criminal case against Jeff.
Numerous felony charges were filed.
Jeff ultimately pleaded guilty to 25 felony counts.
That history was now sitting squarely in the middle of what, until then, had looked like an excellent SBA loan.
The First Answer Was an Immediate No
I called Marco and explained what we had learned.
His response was straightforward.
His bank would not make the loan.
There wasn’t much point in asking for an exception.
Marco reminded me about another borrower he had previously referred to me, Larry, who also had a felony in his past.
That transaction required us to find a lender with a different risk appetite.
It appeared I was going to have to do the same thing again.
I contacted another SBA lender, Bobby.
I reached his voicemail and left a message explaining Jeff’s situation.
About two hours later, Bobby returned my call.
His first question stopped me:
“Steve, have you looked up Jeff online?”
I didn’t.
It was a lesson I thought I’d already learned.
Apparently, I needed the reminder.
Fifteen Years Later, Jeff Wasn’t the Same Borrower
The internet filled in the rest of the story.
But there was another side that couldn’t be understood simply by reading old reports about what had happened.
Fifteen years have passed.
Jeff had paid restitution.
He had not served time in prison.
His tree-service company was still operating successfully.
He had employees and customers.
He had strong income.
He had excellent credit.
And he had accumulated the financial resources necessary to purchase property for his business.
None of that made his previous conduct disappear.
A lender had every right to consider his history, and different lenders could reach very different conclusions about the risk.
But Jeff still had a legitimate business need.
He needed this property.
And the SBA route was rapidly disappearing.
Stop Trying to Make the Borrower Fit the Loan
At some point in a difficult transaction, you have to recognize when you’re pushing on the wrong door.
Instead of continuing to submit Jeff to SBA lenders that weren’t comfortable with his background, I changed strategies.
I approached Don, one of my specialty private lenders.
Don looked at the situation differently.
He understood what had happened 15 years earlier.
But he also looked at what Jeff had accomplished during the years since.
Jeff had a profitable company.
He had the ability to repay the loan.
He had a substantial business purpose for acquiring the property.
And the real estate provided collateral for the transaction.
Don agreed to make the loan.
It wasn’t permanent financing.
It was a one-year private-money loan.
But it gave Jeff something much more valuable at that moment:
Time.
The purchase closed.
Jeff had his property.
His company had a location for its trucks and equipment.
And we had 12 months to figure out what came next.
Mission Accomplished?
Not even close.
Private money had solved the acquisition problem, but Jeff now had a new challenge.
The loan matured in one year.
The clock was ticking.
During that period, Jeff worked with his attorney and succeeded in having his 25 felony convictions expunged.
Surely that would make permanent financing easier.
It did.
But not nearly as much as we hoped.
Some of the SBA lenders I approached were still uncomfortable with his past.
Then another issue surfaced.
Remember Jeff’s plan to have an employee and the employee’s family occupy the house?
One lender wanted the employee to move out—or at least wanted Jeff to provide an explanation indicating that was going to happen.
Jeff rolled his eyes.
The irony was difficult to miss.
He had spent 15 years living with the consequences of a fraud conviction, and now a lender appeared to want an explanation describing something that wasn’t actually going to happen simply to make the transaction fit its lending requirements.
Jeff wasn’t going to do that.
Neither was I.
We needed another lender.
Then a Bank Merger—and CRA—Changed the Conversation
This is where commercial lending relationships can make an enormous difference.
Through my business contacts, I approached another bank.
Something important had recently happened there.
The bank had gone through a merger.
The bank completed its required Know Your Customer (KYC) and background review on Jeff.
This time, the lender was satisfied with what it found.
But there was more happening inside the bank than I initially realized.
Following the merger, the bank wanted to put additional quality loans on its books.
It was also looking for new deposit relationships.
And according to my banker, there was another consideration:
The bank was interested in lending opportunities that could help it meet its Community Reinvestment Act—or CRA—objectives.
The Community Reinvestment Act encourages banks to help meet the credit needs of the communities they serve, consistent with safe and sound banking practices.
For this bank, according to my lending contact, Jeff’s transaction fit into that larger business and community-lending strategy.
Suddenly, the pieces began fitting together.
Jeff wasn’t simply a complicated borrower asking a bank to overlook his past.
He was a successful business owner with a profitable operating company who needed real estate for a legitimate business purpose.
The bank completed its background review and was comfortable with him.
It wanted additional loans.
It wanted a new deposit relationship.
And my banker told me the transaction also fit the bank’s CRA objectives.
The very same transaction other lenders didn’t want had become attractive to this bank for several different reasons.
The Miracle Loan
There was still one more piece to negotiate.
The bank wanted Jeff’s broader banking relationship along with the loan.
Many commercial lenders seeking a meaningful deposit relationship might ask a business owner to maintain deposits equal to approximately 10% or more of the loan amount.
This bank agreed to considerably less.
Jeff committed to a deposit relationship equal to only about 5% of the loan balance.
In return, he received what we had spent months trying to find:
Long-term financing at an attractive interest rate.
The one-year private loan was paid off.
The looming maturity disappeared.
Jeff retained the property his company needed.
His trucks and equipment had a secure location.
And a transaction that had gone from an attractive SBA proposal to a rejection, to a one-year private loan ultimately reached the finish line with long-term bank financing.
Three Lenders. Three Completely Different Perspectives.
This is what makes Jeff’s story one of my favorite Mission Impossible Loans.
The first lender saw a borrower whose past created a problem it wasn’t willing to accept.
The private lender saw a successful business owner, adequate collateral and a legitimate business need—and gave us the one-year financing we needed to close the purchase.
The final bank saw something else.
It completed its own background review and became comfortable with Jeff.
It wanted additional loans following a merger.
It wanted a new deposit relationship.
And according to my banker, the transaction also fit its CRA objectives.
Same borrower.
Same business.
Same property.
Three very different lending decisions.
What changed?
Jeff’s history hadn’t changed.
His business hadn’t suddenly become more profitable.
The property hadn’t moved.
The lender changed.
And the final lender had business, deposit and community-lending objectives that aligned with the transaction in a way the previous lenders’ objectives did not.
The Lesson for Business Owners Who Have Had Challenges
Business owners aren’t always perfect borrowers.
Neither are businesses.
Recessions happen.
Credit problems arise.
Tax problems happen.
Partnerships break apart.
Lawsuits occur.
Bankruptcies happen.
Industries change.
Mistakes get made.
And sometimes something from many years ago unexpectedly reappears when a business owner applies for financing.
That doesn’t mean a lender should ignore legitimate credit, legal, compliance or underwriting concerns.
It also doesn’t mean every loan can—or should—be approved.
But it does mean something important:
One lender’s NO does not necessarily mean there isn’t a loan.
Sometimes it simply means you’re talking to the wrong lender.
The Lowest Rate Isn’t Always the First Question
Business owners understandably want to know:
“What’s the interest rate?”
But when a transaction is complicated, that may not be the first question that needs answering.
The first question may be:
Who will make the loan?
Then:
Which lender understands this borrower, this business, this property and this particular set of circumstances?
And only after those questions are answered does it make sense to compare rates and terms.
Commercial lenders aren’t interchangeable.
Their credit policies can differ.
Their appetite for certain industries and properties can differ.
Their portfolio needs can differ.
Their deposit objectives can differ.
Their approach to a borrower’s history can differ.
And, as Jeff’s story demonstrates, a bank’s broader business and community-lending objectives can matter as well.
The Broker’s Edge
Jeff’s loan wasn’t solved because we discovered a magic lending program.
It was solved because we changed lending strategies as the facts changed.
SBA financing was our logical starting point.
When that stopped working, private money allowed Jeff to acquire the property and bought us time.
Then a business bank whose lending appetite, deposit goals and broader objectives aligned with Jeff’s transaction provided the permanent solution.
Each lender served—or could have served—a different purpose at a different moment.
That’s why a difficult business loan sometimes requires more than filling out another application at another bank.
It requires understanding why the first lender said no—and finding out whether another lender has a reason to say yes.
For business owners who have been turned down by a bank—or who believe something in their past makes financing impossible, the final answer may ultimately be no.
But before accepting that conclusion, there is another question worth asking:
Is there really no loan—or have you just not found the right lender yet?
Every borrower is unique. Every property has a story.
If you’re navigating a real estate challenge — big or small — I’m here to help you find the smartest path forward.
🔎 BROKER’S EDGE – Smarter Real Estate Lending
🤝 Looking out for your Best Interest, and Helping Homeowners, Investors & Small Business Owners since 1990
📞 Steven Hook | Residential & Commercial Mortgage Broker
📱 415-260-9376 | 📠 415-449-3428
🎓 MBA | CMPS | CMA
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🌐 shook@Uamco.com or smhloans007@gmail.com
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Mission Impossible Loans is a Broker’s Edge – Smarter Real Estate Lending series featuring real-world lending situations and the strategies used to solve them. Names and certain identifying details may be changed to protect client privacy. Lending programs, SBA requirements, CRA treatment, eligibility standards and underwriting guidelines change over time. A prior transaction should not be interpreted as an indication of current eligibility, available terms or a commitment to lend.
