Commercial Equity Loan – An Alternative to Cash Out Refinance

Commercial equity loans are used to cash out equity, refinance real estate mortgages, or purchase business real estate.  If you are looking for an alternative to cash out, getting a commercial equity loan is a very good alternative. What are the documents needed for a commercial equity loan?

The following documents are important to have when negotiating for a property loan

  • Executive overview
  • Schedule of business liabilities, AR/AP aging schedules
  • Appraisal
  • Balance sheets
  • Income statements
  • Business tax returns

Why should you seek for a commercial equity loan?

If you are looking to pull out cash out of your commercial property, there is a better option. A commercial equity loan is line of credit that can enable you get access to cash without bothering on your existing loan. This is usually the better alternative if you don’t want to incur closing costs involved in seeking for a new loan or your prepayment penalty for a new loan is a bit higher.  There are many benefits for seeking for a commercial equity loan as opposed to cash-out refinance. For instance, the property owner will not incur any third party fees like environmental, title, or appraisal.  This is because, instead of determining the commercial value of a property with an appraisal, the bank makes use of reports from a comprehensive software program, thereby eliminating any third parties from the negotiation.

Also, the closing cost is usually very minimal (1% fee) and interests charged to you are based on what is borrowed, rather than paying out interest on money you might not use.

Are there any drawbacks for commercial equity loan?

There are still drawbacks to the commercial equity loan alternative. For example, the amount of loan considered is usually smaller than what the property owner can get from cash-out alternative.  The property owner will also face stricter underwritings both in the combined loan to value and the borrower’s credit scores.

Overall, the commercial equity loan is a great option for those looking to avoid going through the difficulties and expenses involved when seeking for traditional commercial loan. It has its shortfall, but many people would rather go through this means than follow the conventional rigorous process.