Can I Refinance My Commercial Property?
While it may be a difficult process, it is possible to refinance a commercial property loan. The lending requirements for commercial property are very strict, making it difficult to qualify for a refinance. However, with the high costs of most commercial property, even a one-point reduction on the interest can create a substantial savings for the property owner. Before seeking to refinance a commercial property, the owner should consider what information the lender will examine and take steps to improve his chances of a successful refinance.
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Credit Standing
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As with any loan, owners of commercial property will need to have their credit reports and history as spotless as possible. Owners should make all payments on time, especially to the current commercial property lender, and avoid accruing new debt during the refinance process. Owners should pull a copy of their credit report and review the report for inaccurate information. Owners with late payment problems may want to pay everything on time for six months or more to improve their credit, and then apply for a refinance.
Property Equity
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Owners with a large amount of equity are more likely to have success in refinancing a commercial property. This is because lenders have less risk from a property with significant equity. Though lending guidelines will vary, owners should have at least 20 percent equity in a commercial property before seeking to refinance. Many lenders will require more. Owners that have less equity in a property will have more difficulty arranging financing and will receive higher interest rates on loans than those with greater equity.
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Property Income
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When providing a commercial property loan, the lender will want to verify that the property is profitable. Investors should have documentation to prove the property makes money. If it is empty or recently rented, investors may want to wait until the property's record improves before seeking to refinance. If the owner operates a business in the property, records showing a profitable company will suffice. Lenders may want to see records for the property owner's entire real estate holdings and verify that the borrower is financially able to pay for the loan.
Other Options
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Depending on the property owner's personal situation, there may be other ways to change the financing of a commercial property. An owner might consider taking a mortgage loan on another piece of real estate to pay off the existing commercial property loan. Arranging a private equity loan to refinance the property may be another option. Depending on the local market, the owner might also consider selling the property as a way to get out of a difficult loan.
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References
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