Commercial real estate (CRE) can be a highly lucrative field to work in. If you are developing commercial properties, you likely are using financing to help cover the costs of acquiring real estate and developing it. However, when you need to jump on a time-sensitive project, you may not get the best terms. Knowing how and when to refinance can be very valuable for CRE developers.
Refinancing a Mortgage
Overall, refinancing your commercial real estate loan is quite similar to refinancing a home mortgage, a process you may be more familiar with. Essentially, you get a new loan that will cover the current balance of your existing loan. By finding one with better terms and/or a lower rate, you can improve your financial outlook.
There are a lot of reasons you may want to refinance your commercial mortgage. In some cases, you may be able to lower your monthly payment. If you are having cash flow difficulties, this may be a valuable option. Alternatively, you may shorten the term of the loan. In a lot of cases, this can mean cutting down the total amount of money you pay out.
A lot of developers use hard money loans and bridge loans to help them snap up properties at good prices. However, this can mean spending a lot on the loan. Thus, cutting your money payment or your overall cost through refinancing may be a good idea.
How To Refinance
As mentioned, the process of refinancing is conceptually quite simple. Some lenders may not deal in refinances, so you will need to find one that does. Additionally, you should keep in mind that there will be some closing costs. Thus, the financial benefits of the refinance need to at least exceed the added costs. These are the main options:
- Bank Loans – These typically have low rates and long terms but strict requirements.
- SBA Loans – These have great rates and terms but are only available for owner-occupied real estate. They are often not an option for developers (but, you should still learn about them).
- Private Loans – These have higher rates and terms but are fast-moving and more flexible.
- Asset-Based Loans – These loans are backed by your assets as collateral. They are similar to private loans but may have better terms due to the reduced risk.
Learn more about refinancing your loan. The above information will help CRE developers find success.