Discussing Commercial Mortgage Refinancing
Refinancing a commercial mortgage, also known as remortgaging, has many advantages for a businesses wanting to expand or pull equity out of their property. An increasing amount of businesses are seeing growth opportunities as the lingering symptoms of the recession finally appear to be easing. Commercial remortgages are available and at terms that are more favourable than terms on commercial mortgages prior to the recession.
It is possible to procure refinancing that would capture significantly lower interest rates. Even a reduction of 0.5 percent can greatly affect the monthly payment and amount of interest paid over the long-term. Lowering the enterprise’s repayment obligation can yield many positive benefits. Today, refinancing can be achieved with the originator of the loan or with other, outside lenders. This has become a popular strategy for many UK enterprises that own their property.
Put Equity To Work
Most businesses in the UK must seriously consider their cash positions and their ability to grow. If an enterprise has demand and has growth potential, the equity in their property can be a useful resource to spur said growth.
Owned property serves as the primary security for commercial mortgages. The following property-types can be refinanced using commercial property mortgages.
- Semi-commercial property
- Office buildings
- Investment properties
- Retail premises
- Hotels, guest houses
- Takeaways and cafes
- Holiday Properties
- Bars & restaurants
The financial performance of the business and the financial capabilities of the guarantors are usually considered but the amount of the remortgage is largely dependent upon the value of the commercial property.
Proceeds from remortgaging can be used to achieve a number of goals, including:
Enterprise Growth – Refinancing a commercial mortgage has allowed many enterprises to acquire new equipment and new technology or add necessary staff to compete in the global marketplace or on an expanded national level. Proceeds from remortgaging are often used for development of new product lines or for the establishment and implementation of new distribution outlets.
Debt Consolidation – Business owners often remortgage with the intent to consolidate secured and unsecured financial obligations. In some cases, proceeds are used to pay off second commercial or residential mortgages but most often the proceeds from a remortgage are used to pay off obligations of the enterprise. This can greatly improve the company’s cash flow and allow management to concentrate on the growth and opportunities at hand.
Property owners considering remortgaging should also research the possibility of tax savings.
Interest Rate Stabilisation – Many enterprises procured adjustable rate mortgages when first acquiring their commercial properties. With today’s favorable interest rates, most owners are remortgaging to escape these variable rates and replace them with fixed rate loans. If the organisation expects to sell within two or three years, this may not be a worthwhile solution but for the long-term property owner, fixed rate commercial mortgages have many benefits. The new rate may be slightly higher in the immediate term but in the long-term, the owner can realise significant savings.
The Remortgaging Application Process
Conventional commercial remortgaging involves a process similar to the process first navigated when acquiring the property. Lending standards are now fairly standardised although interest rates and closing costs can vary. The better the business model and the better the credit rating, the more favourable the interest rate and closing costs will be. Certain elements of the closing process are negotiable, especially if the borrower is highly qualified.
Remortgage applications must be accompanied by the following documents:
- Last 3 years audited accounts for the business
- Last 3 years audited accounts for guarantors
- Latest management calculations
- Profit and loss projections for next 12 months
- Last 6 months business bank statements
- Brief CV and profiles of partners and directors
- Asset and liability statements of all applying entities
There may be alternatives for entities that cannot provide all the above documentation, in which case, please get in touch! This is also true of applicants that have struggled with a turbulent credit history.
Remortgaging is a powerful financial strategy that is designed to empower borrowing entities. The goals are usually to lower payments, gain a better rate and to access capital locked up in assets. In many cases, a business can make more money with this capital than what can be earned through property appreciation.
Remortgaging can stabilise an enterprise, open growth potential and lead to exciting new products and technology. Many businesses in the UK should pursue this strategy as part of their 2013-2014 business plan.
For more information on remortgaging a commercial property, please get in touch by calling 01993 706403 or by contacting us online today.