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May 2019

Commercial Loan News

Refinancing: The 4 Cardinal Components

Refinancing your commercial loan as it approaches its term is a smart money move for your business. As our unpredictable market continues and interest rates keep climbing, locking down a good loan to help you grow your business for years to come is crucial. If you’ve been dragging your feet, consider these top 3 “Reasons to Refi”:

• You have 1-2 years left before your loan “terms”

• Your loan is about to or “balloon” leaving you with an inconvenient payoff

• Your loan is about to reset its interest rate, EEK! (for an Adjustable Rate Mortgage)

When looking to refinance, make sure that you’re considering the most important factors that drive up your borrowed money costs. These factors include rate, terms, amortization, and loan costs.
Depending on your lender, these factors can be customized together to create your perfect new loan—or they can be deceptively strewn together to become one big, money-sucking nightmare.

Rate – Beware of ARMs

Most commercial banks offer Adjustable Rate Mortgages(ARM) for commercialreal estate. Utilizing ARMs protect the lender’s risk when rates are rising. An ARM can start with a lower start rate than many fixed rate loans. Since the lender’s risk is protected by the adjustable rate feature, their overall risk is lower, thus the rate may look more attractive to you, compared to a fixed rate option. Many refer to these as “teaser” rates, or rates designed to get your attention while in reality they end up costing much more throughout the term.
Buyer beware: the cheapest “start rate” may not be in your favor for the long term.

Terms

Most investors like you would prefer a fixed rate in a climate of uncertain or rising rates. A fixed rate term is normally available through the banks in increments of 5, 7 and 10-years. There are also combination options that, for example, may offer 5-years plus a 5-year renewal at a set percentage point. From a 5-year fixed “base rate”, most lenders add a small premium to go up to 7 or 10-years fixed rate. This is just a general guideline, and all lenders vary. With our private lenders, we have special programs with terms of 15 to 22.5-years, giving you more time to pay off the principal.

Amortization

Amortization refers to paying down the principal loan in consistent, equal payments for a set amount of time. Depending on the type of property, commercial money generally amortizes for 20 to 25-years. A longer length of amortization pays principal down only slightly slower, and will keep your Debt Service Cost lower while keeping your Return on Investment (ROI), higher. Unlike big banks, our programs can amortize up to 30 years.

Loan Costs

While there is no avoiding standard closing costs and recording fees, appraisals and environmentalreports and updated surveys (when applicable), there are certain items that pile up to raise the overall cost of refinancing. Banks are infamous for this! Interest rate buydowns, loan origination fees and junk fees can add to the cost, and add to the overall amount that you’re paying interest on. When using a “wholesale” firm like ours, lender discount fees are either heavily reduced or nonexistent, thus only our fee is included as a cost.

In Conclusion

When it comes to refinancing, taking all these factors into account is the best formula for making a good business decision. If you’ve been waiting to refinance, contact our specialists today to discover the solutions that our lenders can provide for your business.
Remember—we don’t play by their rules. When the bank says “NO” to longer terms and low, fixed rates— WE CAN SAY YES.

Commercial Loan News

Refinancing: 5 Additional Considerations the Bank Hopes You Overlook

Refinancing can not only ease the financial burden on your business, but it can also open up a whole new world of possibilities—if you’re a savvy investor. While the banks want you to take their cut-and-dry deal (if they can even offer you one,) it’s in your best interest to be prepared by examining all of the additional elements in the refinance equation.

After covering the 4 Cardinal Components of Refinancing, be sure to examine which special considerations would most benefit or hurt your investment, including:


• The detrimental “balloon payment”
• Your loan-to-value (LTV and Cash-out options)
• Whether or not you have stabilized property benefits
• The opportunity costs of your reinvestment Your eligibility for special programs

Your eligibility for special programs


Remember, when it comes to refinancing, taking all these into account is the best formula for making a good business decision.

Balloon Payments

Balloon payments are tricky. Some balloon payments may be renewed at a pre-set cost, but beware!
Other balloon payments are due in full when their terms are “called”. Sure, starting off with a lower rate may seem like the most beneficial situation for a new business—but consider the prospect of being forced to refinance 5, 7 or 10 years down the road when you are uncertain of the financial climate. Make sure you’re aware of 1) what type of balloon payment you’re considering, and 2) whether your business will start seeing an ROI in enough time to buffer the balloon payment.

LTV and Cash-Out

If the appraised value of your property has risen since your initial loan, then you may be eligible to refinance with cash-out options. While you may not want to use the maximum leverage, a refinance is a great time to consider liberating cash for another investment, such as adding new equipment to your business, or giving your building the necessary updates it needs. Our programs go up to 80% Loan to Value (LTV).

Stabilized Property Benefits

To be considered stabilized, a commercial property should 1) be leased at 90% capacity, and 2) have at least a full year’s operating history. With a stabilized property, you can choose long-term, fixed rate loan options. The longer the “fixed period” of the loan, the more likely a lender will add small rate premiums to your base interest rate in exchange for risk of interest rates moving up. Unlike the banks, we have funds available for 5-year, 10-year, and even 15-year fixed rates (fully amortizing) CRE refinancing loans.
Our 5-year fixed-rates beat out most of the attractively low adjustable rates. (FYI: With us, fixed rates of 7- or 10-years are only marginally higher than a 5-year fixed rate.)

Special Programs

The Wall Street Journal’s Prime Rate can be beat. For larger properties over $5MM, our 10-year rate with
Commercial Mortgage-Backed Security (CMBS or “conduit”) private equity fund money is the lowest-cost
refinancing option available. We have lenders that will even offer 15-year fixed rates, fully amortizing
loans if your property can support the payment with cash flow. With our SBA 504 loans, we can even
offer these low fixed rates for terms up to 22.5 years
.

Opportunity Costs

Evaluating your opportunity cost, as it is referred to in business and commercial real estate, is an examination of whether this property is worth keeping for a longer term at the cost of the “opportunity” to place these funds elsewhere for a better return. When evaluating your opportunity cost, answer these questions:
• What is the 5, 10 and 20-year outlook for this property and the comparable area? Are rents stable and demand rising?
• Is the ROI on the property comparable or better than other similar properties in the area?
• Is it time for renovations or improvements, and would they prove to net a greater return to you?
If your answer was “yes” to renovations or improvements needed, now is also the time to consider this. Adding the cost of improvements or renovations while refinancing is a better way to keep your overall loan costs down and to improve the future value of the property. Also, considering the long-term trends in the property area will help you decide the possible terms of your refinance.

If you find that your opportunity cost is higher than the cost of your refinance, then maybe it’s time to consider selling your commercial real estate.

In Conclusion

Big banks are looking for uncomplicated, easy loans. They simply don’t want to, or are unmotivated to
take the risk on your behalf. Being informed of all of the extended elements of the refinance decision will
help you be better prepared to seek out the perfect loan for you.


Unlike the traditional corner banks, our lenders are not strapped to the strict guidelines and restrictions.
When advising you on your refinancing options, our team is dedicated to pursuing a refinance that
addresses all of the elements of your investment’s current and future needs.

Commercial Real Estate, Fast Business Loan, SBA, What's Closing Now

$242,000 Term Loan/SBA – Dental Office Construction

Augusta, GA

Another client of ours, a dentist, was using his personal credit cards for his business expenses. Because of this, the client had a personal FICO score lower than 600. With a low FICO, no lender could close any loans for this client.

This is something we see often in early-stage businesses. Using a “two-step” approach, we moved all his personal debt over to the business (where it belonged), boosting the personal FICO into the 800 range. A follow-up with an SBA Express loan was approved and closed within 3 weeks. With the new loan, the dentist could finally execute his plans for constructing a new office in 2020.

Often, when it looks improbable or even impossible, chances are — we’ve seen the situation before. We’ll know exactly what to do and thus, we have the the solutions to securing you the loan you need.

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