Commercial Refinancing
A business may run short of funds because of numerous reasons. Some of the reason that compel a proprietor or the management of any business organization to resort to commercial refinancing are helping cash flow, buying of new equipment, debt consolidation, expansion of business, payment of tax bills, purchase of new premises, and renovation or improvement of existing property.
One of the most efficient ways to raise funds is through Commercial Refinancing in which one can raise up to 85% of the existing property value. The terms and conditions for commercial refinancing vary from lender to lender.
Following are the key issues when availing a commercial refinance.
1. Extra cash: The borrower should check out the possibility of getting extra operating capital from the refinance. This extra cash can be beneficial for the company and be constructively use of additional inventory, renovation, expansion and miscellaneous expenses.
2. Restrictions: Does the lender dictate the disposal the funds? Does it apply restriction on the use of the funds? Some of the lenders may apply these restrictions strictly while some others may not interfere with it at all. Select a lender who minds his own business and does not interfere with yours.
3. Interest rate: Many businessmen choose commercial refinancing either to lower the rate of interest or extend the term of repayment. When you want to lower the rate of interest usually you decrease the amount to be repaid.
4. Balloon Payment: In this mode of payment the rate of interest are kept low for certain duration till the time of balloon payments come. The borrower has to worry about refinancing only when the balloon payment is due or every 36 months.
5. Bad credit: Bad credit is bad for borrower but usually the lenders charge a higher rate of interest for borrowers with bad credit.
6. Out of pocket expenses: Sometimes the lender may charge the closing expenses to meet the expenses that the company does for formalities such as documentation, appraisal and insurance.
7. Reporting: Some of the lenders offering commercial refinance make it mandatory for the borrower to report to the bank. If the borrower breaches this stipulation then it is considered a default on the loan agreement.
8. Loan to Value: This ratio is calculated by dividing the balance of outstanding by the appraised value of business. The lower the Loan to Value ratio the lower is the rate of interest in the loan that you apply for.
9. Borrowing Limit: When applying for the commercial refinance try to stretch the upper limit of the loan. Usually the range of the commercial refinance varies from $ 1 million to $ 1.5 million. Moreover the borrowing limit of commercial refinance is usually lower than the commercial purchases that are outright.
