The Commercial Mortgage Loans Guide 

Business Refinancing

by Stephen A. Bush

Refinance Business Debt

For small businesses trying to deal with reduced cash flow and sales, the process of working capital loan and commercial mortgage refinancing has become much more relevant. In some cases commercial borrowers are attempting to secure additional cash, and in other situations they are being forced to refinance an existing loan by the current lender. Refinancing difficulties are currently occurring with both short-term business funding and long-term commercial real estate loans.

There are some business finance circumstances that will be harder to refinance. There are two scenarios that are particularly difficult to refinance, one involving SBA loans and the other business opportunity financing. Golf course mortgages are frequently difficult for a variety of reasons, and business refinancing of golf course business loans is particularly tough in the current financial environment. A fourth example is now emerging as equally difficult, and this involves the need to replace an existing business line of credit with new working capital loans or other financing arrangements.

A more traditional example of refinancing is the need to revise commercial real estate loans in which commercial property serves as collateral. Because many banks have decided to stop making commercial loans, some borrowers will need to refinance simply to replace their existing commercial mortgage. Small business owners are being forced to explore refinancing options in order to get capital from their business equity to support their business financing needs in a slow economy. As borrowers are discovering, commercial refinancing is not as straightforward as it might have been in the past for either of these cases. In particular, there are two problem areas that will often be hard to overcome.

Business valuation is one factor acting as an obstacle to smooth refinancing. Declining sales levels lead to reduced commercial property values because commercial appraisals often derive business value from the income approach. A second key problem impacting business loan refinancing is the lack of recent business profits. Many merchants are showing losses on recent tax returns and financial statements because of financial fluctuations. Recent losses are likely to be a significant difficulty when attempting to refinance commercial loans and commercial mortgages because lenders want current cash flow to cover debt payments.

Borrowers will be better prepared if they have been forewarned that there might not be the usual choices for business refinancing. Before the end of their current efforts to refinance business debt, it seems likely that most businesses will need to consider both new commercial lending sources and new business financing programs.

Refinance Commercial Loans