Understanding Commercial Property Refinancing: A Guide for Business Owners

Jul 10, 2024

What is Commercial Property Refinancing?

Refinancing a commercial property involves replacing your existing loan with a new one, often with different terms, to achieve various financial goals such as lowering interest rates, reducing monthly payments, accessing equity, or changing the loan type. Here’s a detailed guide on how to refinance a commercial property:

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#### 1. Assess Your Current Financial Situation
- **Evaluate Your Existing Loan**: Understand the terms, interest rate, remaining balance, and prepayment penalties of your current loan.
- **Check Your Credit Score**: A higher credit score can help secure better refinancing terms.
- **Review Financial Statements**: Ensure your property’s income and expenses are well-documented and up-to-date.

#### 2. Determine Your Refinancing Goals
- **Lower Interest Rates**: Aim for a lower interest rate to reduce overall borrowing costs.
- **Cash-Out Refinancing**: Access equity in your property for reinvestment or other financial needs.
- **Change Loan Terms**: Modify the loan term length to manage cash flow better or reduce total interest payments.
- **Switch Loan Types**: Move from a variable-rate to a fixed-rate loan for stability, or vice versa for potentially lower rates.

#### 3. Prepare Necessary Documentation
- **Financial Records**: Collect recent income statements, tax returns, rent rolls, and operating statements.
- **Property Appraisal**: Obtain a current appraisal to determine the market value of the property.
- **Loan History**: Provide documentation of your current loan’s payment history and terms.

#### 4. Shop Around for Lenders
- **Compare Offers**: Approach multiple lenders, including banks, credit unions, and commercial mortgage brokers, to compare interest rates, fees, and terms.
- **Consider Loan Types**: Evaluate different types of loans, such as conventional loans, SBA loans, and CMBS loans, to find the best fit.

#### 5. Apply for the New Loan
- **Submit Application**: Complete and submit the loan application with all required documentation.
- **Underwriting Process**: The lender will review your financials, property value, and creditworthiness during underwriting.

#### 6. Close the Loan
- **Review Loan Terms**: Carefully review the terms of the new loan, including interest rates, payment schedule, and any fees.
- **Sign Closing Documents**: Once approved, sign the closing documents to finalize the refinance.
- **Pay Off Existing Loan**: The new loan proceeds will pay off the balance of your existing loan.

#### Benefits of Refinancing a Commercial Property
- **Lower Monthly Payments**: Achieve lower monthly payments through reduced interest rates or extended loan terms.
- **Access Equity**: Use the cash from a cash-out refinance for property improvements, expansion, or other investments.
- **Improve Cash Flow**: Adjusting loan terms can help improve cash flow management for your business.
- **Debt Consolidation**: Consolidate multiple loans into a single, more manageable payment.

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#### Considerations and Risks
- **Closing Costs**: Be aware of closing costs associated with refinancing, including appraisal fees, legal fees, and origination fees.
- **Prepayment Penalties**: Check for any prepayment penalties on your existing loan that could affect the cost-benefit analysis of refinancing.
- **Market Conditions**: Consider current market conditions and future interest rate trends when deciding to refinance.

#### Conclusion

Refinancing a commercial property can provide numerous financial benefits, but it’s essential to carefully evaluate your goals, compare lender offers, and understand the terms and costs involved. Working with experienced financial advisors or mortgage brokers can also help navigate the process and secure the best possible terms.

At Atlantic Commercial Lending, we specialize in helping property owners refinance their commercial properties efficiently and effectively. Contact us today to learn more about how we can assist you in achieving your financial goals through refinancing.