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Refinancing Commercial Loans

For a business owner faced with decreased sales and cash flow, the need to consider small business loan refinancing has become much more timely and critical. In some cases commercial borrowers are attempting to secure additional cash, and in other situations they are being forced to refinance an existing loan by the current lender. Difficulties for refinancing are now occurring frequently with short term business funding and long term commercial real estate loans.

There are some business finance circumstances that will be harder to refinance. There are two scenarios that are particularly difficult to refinance, one involving SBA loans and the other business opportunity financing. The need to replace existing business lines of credit with new financing arrangements is now emerging as equally difficult.

Revising commercial mortgage loans in which there is business property serving as collateral is a more traditional form of refinancing. Some borrowers are finding that they need to refinance simply to replace their existing commercial mortgage because many banks have decided to stop making commercial loans. Due to a slow economic pace, a number of small business owners are exploring the possibility of refinancing in order to get cash from existing equity to support their business financing needs. As borrowers are discovering, commercial refinancing is not as straightforward as it might have been in the past for either of these cases. In particular, there are two problem areas that will often be hard to overcome.

One factor proving to be a refinancing obstacle is business valuation. Because commercial appraisals typically derive most business value from an income approach, a declining sales level leads to reduced commercial property values. The lack of recent profits for many businesses is another key problem impacting business loan refinancing. Because some financial uncertainties have reduced sales for many businesses, a high number of merchants are showing losses on recent financial statements and tax returns. Because lenders look at cash flow to see if it is sufficient to cover debt payments, recent losses are likely to be a significant difficulty when attempting to refinance commercial mortgages and other commercial loans.

Borrowers should find themselves in better shape if they realize in advance that there might not be the usual choices for business refinancing. It is likely that most businesses will need to evaluate and consider both new commercial lending sources and new business financing programs before the end of their current efforts to refinance business debt.

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