As we continue to work through the post recessionary financial melt down of 2008 through 2009, there are still a large number of commercial business operations struggling to get back on their feet.
In order to continue to survive the down turn, asset rich companies end up turning to asset based lenders, many times at higher costs, to inject capital into the business through debt financing facilities that these types of lenders provide.
And when a business is in some form of financial distress, the cheapest form of asset based lending is going to come from commercial property financing, assuming the business has real estate assets that it can offer as security.
If you have a business that is looking to leverage commercial property to inject capital into the business, then here are a few things to consider.
First, time is typically your enemy when it comes to commercial mortgage financing. The process can take longer than you think, especially if you are trying to get funding through a bank or institutional lender when you’re financials are not that strong.
Second, the cost of a commercial property loan may be higher than what you have been used to pay over the years, especially if the most likely source of financing is likely going to be coming from a private mortgage lender.
Third, for any type of financing facility or loan you may consider accepting, make sure you allow enough time for the business to get back on its feet before the commercial loan needs to get repaid.
For instance, in the case of a private mortgage, most lending terms are for one year.
If you’re highly confident that your cash flow will get back on track in the coming months and have strong enough financials to go back to a bank or institutional lender to refinance, then you should be considering a two or three year commercial mortgage term if they are available, even at slightly higher rates as the cost of having to refinance a private mortgage with another private mortgage a year from now will be significant.
Also, there is no guarantee that in a year’s time that private money will even be available for your particular requirements, at the time the old mortgage needs to be paid out.
A private mortgage is going to have some placement costs you are going to have to absorb, so better to only have to incur them once and make sure that any short term commercial mortgage your take on will bridge you to a period when you can return to low cost forms of money.
Finally, if you do end up generating additional capital through a private commercial mortgage, make sure that you allow yourself plenty of time to arrange the payout of this mortgage in the future. As I mentioned earlier, commercial mortgages can be slow to arrange and the last thing you want is to get to the end of your private mortgage term and be in a funding delay with a bank or institutional mortgage application, potentially generating more penalties and/or fees in the process.
Short term commercial property financing in many ways is about biting the bullet and paying what you need to get financing in place, but to also minimize the cost as much as possible and being realistic about how much time you are really going to need the money and how much time its going to take to pay it back.
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I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel