Refinancing commercial debt is perhaps the least known of all financing. When compared to the residential mortgage market – where price competition has meant that movement of mortgages between banks is a constant – it is notable how little commercial mortgages and lending in general change between banks and lenders.
For many years, most banks adopted a uniform approach to lending for business purposes, and commercial premises/property. One of the most hated was the bank’s “Annual Review” period whereby the bank may write a 20-year loan but would retain the right to review the company financials every year and fi in doubt, force a sale/redemption of the loan within 6 months.
Most famously this was common among some of the Big 4 lenders in rural areas whereby legal action was taken against two major banks for their over-eagerness to close business and sell farms below market value.
Thankfully recent changes, mostly due to broker competition, have meant an explosion in lending options and terms.
There are lenders now, some offering 30-year terms, with no review periods. Interest-only periods, and many other lending options that will best suit your business and cash flow.
Linda was running a family business for 10 years near Kawana Waters, QLD. While trading income was excellent, the overheads, and the interest repayments, meant that the net profit was always less than it should be.
They had eight years left on a commercial premises loan, as well as two lines of credit facilities that were both near their limit.
What bothered Linda and her accountant most of all was the need to produce up-to-date financials on spec for the bank every six months, and the fear that the bank had the right to demand full repayment of the loan if they were in any way worried about the company’s solvency.
We refinanced the existing loan to a 15-year term with 5 years interest only. In addition, the existing lines of credit were consolidated into the main loan, as these were initially used for warehouse conversion – the bank wouldn’t lend them cash for this. There are no review periods by the lender, and the option to refinance in another 5 years.
Her monthly repayments reduced by $4,200, and this has allowed her to expand the business further and increase sales by 80% in less than 9 months.
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