Refinancing working capital loans and commercial mortgages is a good illustration of why small business owners have increasingly been forced to consider new commercial financing alternatives. Even though refinancing commercial mortgage loans and working capital loans is doable, small business owners should be prepared to face some unusual difficulties.
For small businesses trying to deal with reduced cash flow and sales, the process of small business loan refinancing has become much more relevant. In some situations business owners are being forced to refinance existing loans by current lenders, and in other cases they are attempting to secure additional cash. Difficulties for refinancing are now occurring frequently with short term business funding and long term commercial real estate loans.
Some commercial finance situations lend themselves better to refinancing than others. There are two scenarios that are particularly difficult to refinance, one involving SBA loans and the other business opportunity financing. The need to replace existing business lines of credit with new financing arrangements is now emerging as equally difficult.
The need to revise commercial real estate loans in which commercial property serves as collateral is a more traditional example of refinancing. Because many banks have decided to stop making commercial loans, some borrowers will need to refinance simply to replace their existing commercial mortgage. Due to a slow economic pace, a number of small business owners are exploring the possibility of refinancing in order to get cash from existing equity to support their business financing needs. As borrowers are discovering, commercial refinancing is not as straightforward as it might have been in the past for either of these cases. Two specific problem areas will be particularly challenging.
One factor proving to be a refinancing obstacle is business valuation. Declining sales levels lead to reduced commercial property values because commercial appraisals often derive business value from the income approach. The lack of recent profits for many businesses is another key problem impacting business loan refinancing. Because some financial uncertainties have reduced sales for many businesses, a high number of merchants are showing losses on recent financial statements and tax returns. Because lenders look at cash flow to see if it is sufficient to cover debt payments, recent losses are likely to be a significant difficulty when attempting to refinance commercial mortgages and other commercial loans.
Whatever the specific financing situation for a small business, commercial borrowers should be better prepared if they approach the process with a realization that there might not be the usual obvious solutions to refinancing business loans. Before the end of their current efforts to refinance business debt, it seems likely that most businesses will need to consider both new business financing programs and new commercial lending sources
For small businesses trying to deal with reduced cash flow and sales, the process of small business loan refinancing has become much more relevant. In some situations business owners are being forced to refinance existing loans by current lenders, and in other cases they are attempting to secure additional cash. Difficulties for refinancing are now occurring frequently with short term business funding and long term commercial real estate loans.
Some commercial finance situations lend themselves better to refinancing than others. There are two scenarios that are particularly difficult to refinance, one involving SBA loans and the other business opportunity financing. The need to replace existing business lines of credit with new financing arrangements is now emerging as equally difficult.
The need to revise commercial real estate loans in which commercial property serves as collateral is a more traditional example of refinancing. Because many banks have decided to stop making commercial loans, some borrowers will need to refinance simply to replace their existing commercial mortgage. Due to a slow economic pace, a number of small business owners are exploring the possibility of refinancing in order to get cash from existing equity to support their business financing needs. As borrowers are discovering, commercial refinancing is not as straightforward as it might have been in the past for either of these cases. Two specific problem areas will be particularly challenging.
One factor proving to be a refinancing obstacle is business valuation. Declining sales levels lead to reduced commercial property values because commercial appraisals often derive business value from the income approach. The lack of recent profits for many businesses is another key problem impacting business loan refinancing. Because some financial uncertainties have reduced sales for many businesses, a high number of merchants are showing losses on recent financial statements and tax returns. Because lenders look at cash flow to see if it is sufficient to cover debt payments, recent losses are likely to be a significant difficulty when attempting to refinance commercial mortgages and other commercial loans.
Whatever the specific financing situation for a small business, commercial borrowers should be better prepared if they approach the process with a realization that there might not be the usual obvious solutions to refinancing business loans. Before the end of their current efforts to refinance business debt, it seems likely that most businesses will need to consider both new business financing programs and new commercial lending sources
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