6 Top Reasons Why Borrowers Refinance Their Commercial Property

If you have a mortgage on your commercial property, the thought of refinancing is always fairly top of mind.

That’s because the relatively short term length of most commercial loans (5-7 years) makes refinancing a necessary part of your long-term financial strategy.

But investors don’t just refinance when their loan matures.  There are numerous situations where securing a new loan can provide short and/or long-term benefits.

Here are some of the most common reasons why a borrower might refinance their commercial property.

  1. To Boost Cash Flow

Improving cash flow is one of the main reasons for refinancing a commercial property. If interest rates are favorable, a business owner can reduce their annual debt service for additional cash flow.

2. To Pay Off an Existing Mortgage

If you have an existing mortgage with a balloon payment coming due, refinancing may be the best way to get that payment made. You may also want to pay off an existing mortgage to secure a better interest rate or amortization period.

3. To Increase Working Capital

If you need working capital for equipment, renovations, to cover expenses while you wait for receivables, or for more inventory, then refinancing could get you the money you need.

If you have already a good amount of equity in your property, you could access the cash you need through a cash-out refinance. Lenders will specify the ways in which this cash can be used, but investors often use the cash to either improve their property or make an additional purchase.

4. To Consolidate Debt

If you have a variety of debts and you want to bring them all together with one convenient payment each month, then refinancing may be a good option. Examples may include credit card debt, tax debt, other loans, or outstanding payables.

When your debt is consolidated into one payment, it will help to ease your stress and will save you money on monthly interest payments from a variety of different debts. 

5. To Improve the Property

Having the funds available to make necessary property improvements can sometimes be a challenge for real estate investors. You never know when you’ll need to repair a leaky roof, repave a parking lot, fix sidewalks, replace carpets, or make other improvements for safety or just aesthetic reasons.

Refinancing can free up the funds needed to tackle these issues should they arise.

6. To Secure a Lower Interest Rate

If credit or property issues prevented you from securing an ideal financing solution at first, you could attempt to refinance at a lower interest rate once those factors are improved.  

Granted, raising your credit score or re-tenanting an apartment building take time. But if you can accomplish these tasks during your original loan’s term, you may be able to save money by refinancing and locking in a lower interest rate for a longer term.

Refinancing your commercial real estate loan can be a useful strategy for a wide range of reasons. Many commercial property owners feel like this isn’t an option or that they wouldn’t qualify, but you’d be surprised what’s possible when there is a dedicated team of professionals working for you. If you’d like to learn more about refinancing your commercial property loan, simply reach out to our mortgage experts today.