Refinancing commercial property is the process of acquiring a new loan with the intent of clearing an existing one. Property owners often go for this option to improve their loan terms. Here are aspects they need to understand about commercial property finance before they consider it.
Types of Commercial Real Estate Refinance Loans
SBA Loans
These are loans that a government agency offers to entrepreneurs that are starting in the industry. The loans help them purchase new inventory or refinance their debts. For the property owners to qualify for this loan, they need to maintain a good credit history.
Commercial Refinance
This type of loan allows a property owner to take a mortgage loan to pay for other loans. It intends to take advantage of the minimal interest rates offered.
Requirements for Commercial Property Refinancing
Business Credit
Lenders will look at the property owners’ credit scores to check whether they can qualify for a loan and the payment duration. For the owners to be eligible for commercial real estate refinancing, they need to have a high score.
Date-To-Service Ratio
It is a ratio used by lenders to compare the business’s income to the debt services it has to pay for. It helps them know whether the property owner can qualify for a loan or not. For the owners to have a high probability of qualifying for the loan, they need to have a high ratio.
Business Documentation
Lenders need to ascertain that your business is legal and has been operational. Therefore, the property owners will have to prove bank statements and other essential documents to back up their operations. The owners need to understand that the required documentation by the lenders varies.
Merits
Avoid Large Payments
Notably, there is a balloon payment paid at the end of the term by the investors. However, the amount is hefty, and not all owners have such an amount to pay for it. To mitigate this, the property owners can use commercial real estate refinancing to extend the duration to which they will be required to make the balloon payment.
Minimal Monthly Payments
Commercial property refinancing eases the burden of investors as the monthly payment is significantly lower. They can, therefore, plan themselves adequately.
Demerits
Some Loans Cannot be Refinanced
Investors should note that there are types of commercial real estate refinance loans that they might not offer. It would, hence, be best for them to inquire from their lender which loan type is available for them to take.
Penalty From Other Lenders
Notably, some lenders do not support early repayments. When the investors consider refinancing to pay for such a loan, they will be penalized. It is a disadvantage to them as they will have additional costs.
By understanding the different types of loans, investors can pick one that suits their financial situation best. They should also weigh the advantages and disadvantages to ease the selection.