Refinancing a commercial property means taking out a new mortgage to replace the existing one. Refinancing could bring a number of benefits to your business if done at the right time.
Refinancing could be beneficial to your business in the following scenarios:
Lower interest rates: Interest rates regularly fluctuate. If rates have fallen since taking out your mortgage, you might be able to refinance at a lower rate. In this instance, refinancing will reduce your monthly payments and overall interest costs. At ASC, we often achieve this once a business has evolved from start-up to maturity.
Improved business performance: If your business has improved since taking out your original commercial loan, you might be able to access better loan terms, including lower interest rates, by refinancing. This scenario is relevant for example, when a business moves from being start-up to established.
Change of loan term: Extending the loan term can lower your monthly payments, thus improving cash flow. Shortening the term will mean you pay the mortgage off quicker, reducing the total interest cost.
Need for additional funds: Winning a large contract could mean that you’ll need additional funds for working capital. When you need to increase cash in the business, refinancing is one way of accessing the equity tied up in your commercial property.
Consolidate debt: Refinancing can allow you to consolidate multiple loans into one. Debt consolidation can simplify debt management and lower overall monthly loan payments, improving cash flow.
Property value increase: If the value of the property you secured the loan against has increased, you may be eligible for a more favourable loan due to the lower loan-to-value (LTV) ratio.
Refinancing a commercial property isn’t a decision to make lightly. It’s important to factor in the cost of switching (for example, there could be early repayment and arrangement charges) when calculating potential cost savings. You’ll need to scrutinise the new loan terms carefully, including the interest rates and repayment terms, and review the early repayment penalties for your existing loan.
At ASC, we can help you determine if refinancing is the right decision for you. We can guide you through the process and help you secure a suitable alternative loan. If you’re considering refinancing a commercial property and would like expert help to evaluate your options, please get in touch.
