Refinancing Your Commercial Property: What You Need to Know

Jul 10, 2024

Understanding Refinancing

Refinancing commercial property can be a strategic move to lower interest rates, access equity, or improve loan terms. Here’s an in-depth guide to help you understand the process, benefits, and considerations when refinancing your commercial property.

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#### Reasons to Refinance Commercial Property

1. **Lower Interest Rates**
   - Take advantage of lower market rates to reduce monthly payments and overall interest costs.

2. **Access Equity**
   - Tap into the equity built up in your property for renovations, expansion, or other business needs.

3. **Improve Cash Flow**
   - Extend the loan term to reduce monthly payments and improve your business’s cash flow.

4. **Change Loan Terms**
   - Switch from a variable-rate to a fixed-rate loan for stability, or vice versa.

5. **Consolidate Debt**
   - Combine multiple loans into a single, more manageable payment.

6. **Remove or Add Partners**
   - Adjust the ownership structure by refinancing to buy out partners or add new ones.

#### Types of Refinancing Options

1. **Rate-and-Term Refinance**
   - Modify the interest rate and/or term of the existing loan without changing the loan balance significantly.

2. **Cash-Out Refinance**
   - Refinance for more than the current loan balance and take the difference in cash.

3. **SBA 504 Refinance**
   - Utilize SBA 504 loans to refinance existing debt with the added benefit of long-term, fixed-rate financing.

4. **SBA 7(a) Refinance**
   - Use the versatile SBA 7(a) loan program to refinance existing debt, often with favorable terms.

5. **CMBS Refinance**
   - Refinance through Commercial Mortgage-Backed Securities for potentially lower rates and non-recourse options.

#### Steps to Refinance Commercial Property

1. **Evaluate Your Current Loan**
   - Review the terms, interest rate, remaining balance, and prepayment penalties of your existing loan.

2. **Assess Financial Health**
   - Ensure your business financials are strong, with up-to-date profit-and-loss statements, balance sheets, and cash flow statements.

3. **Determine Refinancing Goals**
   - Clearly define what you aim to achieve with refinancing, such as lower payments, cash out, or better terms.

4. **Gather Required Documentation**
   - Prepare personal and business financial statements, tax returns, credit reports, and property appraisals.

5. **Shop for Lenders**
   - Compare offers from multiple lenders to find the best rates and terms for your refinancing needs.

6. **Submit Application**
   - Complete the refinancing application with your chosen lender and submit all required documentation.

7. **Appraisal and Underwriting**
   - Undergo a property appraisal and the lender’s underwriting process to assess the value and risk.

8. **Review Loan Terms**
   - Carefully review the new loan terms, including interest rate, term, fees, and any prepayment penalties.

9. **Close the Loan**
   - Sign the refinancing agreement and complete the closing process, ensuring all old debts are paid off with the new loan proceeds.

#### Benefits of Refinancing

1. **Cost Savings**
   - Reduce interest payments over the life of the loan, saving significant amounts of money.

2. **Increased Cash Flow**
   - Lower monthly payments can free up cash for other business expenses or investments.

3. **Access to Capital**
   - Utilize equity for business expansion, renovations, or other strategic initiatives.

4. **Improved Loan Terms**
   - Achieve more favorable loan terms, such as fixed rates or longer repayment periods.

#### Considerations and Risks

1. **Closing Costs**
   - Be aware of closing costs, which can include appraisal fees, legal fees, and other charges.

2. **Prepayment Penalties**
   - Check for any prepayment penalties on your current loan that could affect the cost-effectiveness of refinancing.

3. **Loan Term Impact**
   - Extending the loan term can reduce monthly payments but may result in higher total interest payments over time.

4. **Market Conditions**
   - Ensure that refinancing now makes sense based on current market conditions and interest rates.

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#### Conclusion

Refinancing your commercial property can be a powerful tool to improve your financial position and support your business goals. By understanding the process, benefits, and potential risks, you can make informed decisions and achieve the best possible outcomes.

At Atlantic Commercial Lending, we offer expert guidance and tailored solutions to help you navigate the complexities of refinancing commercial property. Contact us today to explore your options and find the best refinancing strategy for your needs.