Turn Commercial Real Estate Equity Into Capital
One of a business’s greatest assets is the commercial real estate it owns. The buildings that house their operations offer not only a secure location, but opportunities for success and growth. It’s not uncommon for a business to see times of hardship, and sometimes a little extra capital would be enough to see the company through this hardship. Or, perhaps a company has an opportunity to expand, if only it had the funds. By tapping into the collateral of their property, either of these scenarios is attainable.
A capital loan on commercial real estate can enable a company meet payroll, acquire operating capital or meet other emergency needs during a crisis. Opportunities can include acquiring a new business, marketing and advertising or improvements to existing operations.
Types of Capital Loans
A business owner has several viable options at their disposal for tapping into the equity of their commercial real estate. The most obvious solution would be a second mortgage. With a second mortgage, just as with the first, the commercial building works as collateral for the loan. Expect to pay a higher interest rate on a second mortgage due to the risk involved for the lender. If you should default on both loans, the first mortgage lender gets first dibs on what is owed to them. This carries the risk of leaving the second lien holder with nothing.
A second mortgage also has a shorter term than the first mortgage. Generally, anywhere up to five years is the norm. A second mortgage should only be used in the most necessary of circumstances.
A cash-out refinance is another option to acquire the capital you need. This is a great alternative for a business that has built up a large share of equity. In a cash-out refinance, the lender pays off the first mortgage and lends extra funds to the borrower based on the equity that was available. The advantage is longer loan terms and better interest rates.
Mortgage refinancing is the third option. In this scenario, the borrower seeks to refinance the balance of their existing commercial real estate loan at a better rate. This lowers the monthly mortgage payments, helping the business free up monthly capital for other endeavors or debts. The risk to this type of loan is that the fees to secure the loan could be substantial enough that nothing is really saved.
The option you choose will depend on your current situation, including the equity you’ve built up, and the size of your financial needs. Commercial real estate makes a great source of viable capital.
