Refined Your Loan

Commercial Refinancing With Vanta Commercial Lending

Refinancing a commercial mortgage is usually done in the same way as refinancing other loans, and with similar requirements. To refinance, a borrower should be creditworthy and be able to demonstrate that they have the income required to service the loan. There is no guarantee that refinancing options will always be available, though – even if you got the initial mortgage easily. If your circumstances have changed then that could affect how likely you are to get accepted. Sometimes a personal guarantee is required to secure the loan, for example.


Financial Documents for a Commercial Mortage

You will need to present some documentation to refinance your commercial mortgage. The lender will want to see a financial picture of the business, including bank records and profit and loss statements, as well as financial statements. 

You will usually be asked to provide at least 12 months of financial statements, although the longer a history you can show the better. The lender might also want to see a detailed business plan and an executive summary showing the growth of the business. They may want to know who the directors of the company are and to see evidence that they are all qualified to lead the company.

If profits are marginal then you might be asked to provide a personal guarantee and put down your own personal assets as an additional form of collateral in case the business defaults on the loan.

What About Lending Costs

Commercial loans are often more expensive than loans to consumers. The appraisal might cost $2,000 to $5,000 or more if the property is a big investment. If the appraisal does not show that there is sufficient equity in the property then the loan will not be an option. 

In addition to the appraisal, there are other expenses for inspections, origination fees and also the closing costs. You will need to invest a lot of time into the application process, and that time will cost the business money in one way or another.


Will Refinancing Be Cost-Effective?

Before you invest time and effort into refinancing it is a good idea to confirm whether such a move would be cost-effective. With origination fees being around 1 percent of the loan, refinancing can cost a lot of money. Even if you would get better interest rates refinancing that doesn’t always mean that you will break even after the origination fees, closing fees, and other costs are taken into account.

Getting a New Mortgage

If you do decide to refinance, you will need to apply for the new mortgage. Shop around and give several banks the chance to compete with your current loan. Don’t be scared to negotiate on the fees. Each lender will review your status and perform credit checks (should you get to the stage of wishing to do this) and then pass it on to the underwriter, who will want to ensure that you have a good credit history before they are willing to even consider lending to you.

Your cash flow will also be taken into account. Make sure that over the long term you are able to demonstrate that you have enough income to pay the mortgage and any other overheads that your business has.

The underwriter will consider several things:

Loan to value ratio: this considers the equity in the property compared to the amount that you are trying to borrow. You should have at least 20 percent equity. A Loan to value ratio of more than 80 percent is unlikely to get approved by any mainstream lender.

The debt ratio: This is the amount of debt payments that you are making each month compared to the income the business has. The allowable debt ratio varies from industry to industry.

Debt service coverage ratio: This considers the annual net (not gross) income of the business divided by the annual debt payments. A ratio of 125 percent is usually considered acceptable.

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