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Steps for refinancing your commercial loan

Tags: commercial loan, real estate
Friday, Aug 07, 2015
by Angela Kesselman, Associate Director of Finance
Are you considering refinancing the existing loan on your commercial real estate? Maybe you want to lower your overall monthly payments, lock in a low fixed rate, or take cash out for property improvements. Maybe you want to invest in another property, or refinance an existing note with a upcoming balloon payment? Even if you aren’t currently considering a refinance, it might be prudent to do so given the current interest rate environment and the overall health of the credit markets. Markets are cyclical and the 10 year treasury has just hit a high for 2015, marking what could be the long awaited increases in long term interest rates.

The Madison Group works with clients to help them determine if a refinance is the right option. Here are some factors for you to consider before you start the refinance process.

Where to begin? The first question to consider is whether or not you have a prepayment penalty on your existing loan. You can determine this by reviewing your loan documents or calling your lender to ask about the penalty. Make sure that you are not “locked out” of any prepayment of the loan and also review the documents to see if you will have an exit fee. It will be important to understand all of the fees associated with the payoff of the loan in order to make the best decision financial decision. If you have a loan that is maturing, be sure and check the prepayment open period. These periods typically range from 3 – 6 months, and you want to be sure to begin the refinance process well in advance of the maturity date.

The next step: If you determine that a refinance is your next move, you will need to prepare some paperwork to determine if the loan is feasible. Lenders will look at your current and historical cash flow, along with rent rolls to determine a value and debt service coverage on the property. The professionals at The Madison Group can analyze the information you provide to quickly determine your ability to refinance.

Prepare your paperwork: Lending professionals will require that you submit a personal financial statement with a detailed schedule of real estate, 2 years of personal and business tax returns, 2 years of profit and loss statements on the property along with year to date information and a current rent roll as part of a basic underwriting package. They will also request details on capital improvements to the property over the past few years.

I qualify, now what? As you move forward with the refinance, you will next want to consider your long term outlook for the project. Are you keeping it long term? Do you have some much needed improvements to do? Do you have lots of equity that you could reinvest at a low cost of funds into another asset if you were to cash out the property? Is your strategic plan to sell the property in the next few years? There are many options to consider as you move forward in order to make the most prudent decision now.

What type of loan do I want? Now that you have thought about the process and what you would like to achieve, you will need to determine what type of loan you want. Do you need recourse or a non- recourse loan? How long of an amortization do you want? The difference in cash flow on a 25 year am vs a 30 year am can be significant. Do you want a self-amortizing loan? Are you comfortable with a shorter term fixed portion of the loan if it gives you the ability to prepay and sell the property at some point in the future? There are also many options for fixed and floating loans. When calculating your savings, you will need to add this into your calculations. You may also be asked to make an upfront deposit to pay for third party reports and legal. Once you decide upon a strategy, be sure and ask these details up front.

The professional at The Madison Group will partner with you every step along the way to the loan funding. They work with the third party reports, and underwriting conditions, to ensure you have a success closing. Often, unknown conditions pop up, and the team is invaluable to eliminate these potential deal breakers.

The Madison Group has a proven approach to commercial real estate loans:
  • We give fast, straight forward answers to your lending questions.
  • One person will handle your file from start to finish.
  • We will eliminate the tangle of paperwork.
  • We place our loans with direct lenders
When considering refinancing your commercial loan, consider hiring an experience commercial loan broker like The Madison Group, you will save time and effort.