Quite simply, refinancing a commercial mortgage means paying off one mortgage and replacing it with another. It is usually done to secure better interest rates or more favourable terms and nearly always with the aim of freeing up more cash for the business.
You can refinance your mortgage if the business owns, or even part owns a property. Commercial mortgages are calculated and set up in very different ways from residential mortgages. Because of this, when a business decides to refinance the terms of its mortgage its negotiations can be aided by updated information.
New accounts, projections or a more detailed set of balance sheets can influence the lender to offer reduced rates or loan more capital to the company. And if you can demonstrate an improved credit history then it is likely that the lender will have more confidence in your ability to make your repayments.
If you consider how long it has been since your original mortgage application, it is likely that both your accounts and credit history are much improved. It means you might qualify for better terms and interest rates than you are currently paying.
Lower rates – by taking advantage of lower interest rates on the market a business can save a significant amount of money and reduce the total amount of interest being paid on the loan. This is principally seen in reduced monthly repayments
Switching rates – right now, interest rates are low, but when they start to rise mortgages attached to a variable rate will see their monthly repayments do likewise. Refinancing your mortgage can help you switch to a fixed rate, allowing a fixed monthly amount to be factored into financial projections.
Equity release – refinancing enables businesses to release equity tied up in their property that can be used for new projects or purchasing equipment, product or other growth areas. Other areas of financing are still difficult to access if you need funding for growth and expansion. Refinancing enables you to access funding through equity at a better rate than a standard business loan as you are offering a great deal of security against it.
Debt consolidation – you may be finding it difficult to repay multiple debts so lumping them all together under one repayment can make a lot of sense. By remortgaging you can be left with just one affordable repayment each month (but only if there is equity in your property). Mortgage rates are often better, and cheaper than other forms of commercial borrowing, but you may end up paying more in the long run despite it being a manageable solution for the short and medium term.
Difficulties in refinancing your commercial mortgage
Refinancing a commercial mortgage can take as long as getting your first mortgage. And you have to consider early repayment fees being applied by your first lender.
Refinancing also means gathering an enormous amount of financial data, balance sheets, projections and forecasts as well as the financials of all key stakeholders in the business and if you cannot show your profit and loss or your cashflow then any new lender will have a hard time in refinancing your mortgage.
As with any big financial decision, refinancing your mortgage can have a positive influence on your business. It can reduce payments, free up cash and save you money on a monthly basis. But it doesn’t come without its fair share of planning and research.
If you are looking to refinance your commercial mortgage or want to reduce the amount you are paying each month or are just interested in knowing more, get in touch with us today at 03330 069141 or request a call back here.