Financial Guides: Should Company Refinance Commercial Mortgage?
There are many legitimate reasons for refinancing a commercial mortgage, such as avoiding high interest rates or avoiding balloon payments. Either way, it is important to know the pros and cons of commercial mortgage refinancing.
Commercial Mortgage Basics
When lenders evaluate customers for commercial mortgages or refinancing, they first review the credit histories of the company and the business owner. Then, they carefully analyze the risks of the commercial venture and target mortgage terms. Like with a first mortgage, business owners who present a solid business plan that is based on historical success will most likely convince lenders to approve the loan with favorable…
First, they may want to take advantage of newly available rates that are lower. They may want to reduce their total loan costs by taking advantage of market interest rates that unexpectedly drop. Second, some business owners seek commercial loans with adjustable rates so they can minimize the initial down costs.
However, if interest rates suddenly start to rise, or when the initial period of low rates ends, adjustable rate commercial mortgages may become high. Constantly adjusting rates will make it difficult for business owners to predict their monthly payments. Third, some businesspeople simply may want to cash out if the equity of the commercial property is sizable. Fourth, some business experts know that large balloon payments are avoidable through preemptively refinancing the commercial mortgage. Sometimes, businesspeople prefer development finance alternatives in order to secure short term loans.
Documentation…
Some entrepreneurs are forced to use personal assets, such as stocks or savings, but others use business assets, such as equipment, inventory and receivables. Regardless of whether it’s personal or business related, real estate is an excellent asset. Lenders prefer real estate because it’s permanent and maintains a fairly stable value. However, business owners must be sure to first verify what type of real estate is accepted as collateral, what percentage of the value is lendable and if there are any particular property characteristics that may disqualify the real estate from financing, such as wells or septic systems. When attempting to use collateral to secure property development loans, pay close attention to the financial risks and only attempt high risk high return loans if the conditions are…