Commercial Real Estate Loans: When Paying Higher Interest is the Cheaper Option
There’s no doubt that interest rates on commercial real estate loans are important. But interest is not the only factor — or even the most important factor. Borrowers who shop commercial interest rates or who assume that the best loan is the one with the lowest rate often are surprised to hear that’s not always the case.
Borrowers Must Be Realistic About Today’s Commercial Interest Rates
Prior to the pandemic, and in different economic times, a borrower may have taken out a loan with a favorable interest rate. They want to use that rate as a comparison when shopping for financing. But in this current climate, banks aren’t lending.
That doesn’t mean there still aren’t solid reasons to move forward with a commercial real estate loan because may far outweigh a slightly higher rate.
Commercial Real Estate Loans Help Borrowers Pay Down Debts, Lower Monthly Payments
Today, more borrowers are leaning on business credit card debt or cash advance loans with expensive rates and interest that may not be tax deductible. A borrower can benefit from pulling money out of commercial property to pay off those debts. While the commercial real estate loan might have a higher interest rate than what the borrower is accustomed to seeing, when you add up all those other payments and compare it what the new payment will be, it may make good fiscal sense.
We often see borrowers who have paid down existing loans over the past several years and now the property has increased in value. By taking out a rate/term loan with a low LTV versus a cash-out refinance, the commercial interest rate might be higher, but the actual payment might be lower, generating more cash for investment.
Bank loans typically have short amortization periods, like 20 years. By getting a 30-year amortization, even though the interest rate may be higher, the monthly payment may be lower, increasing income.
SBA loans are popular because the rates are inexpensive. So why are borrowers so thrilled when they can refinance an SBA at a higher interest rate?
That program — and some other financing options — require the borrower to leverage virtually every asset they have, including real estate, receivables, personal home, inventory — all but their firstborn. While those low rates initially were compelling, borrowers soon found they’d hamstrung their business. Now, they want out. They can pay off the SBA loan with at today’s commercial interest rate and free up their other assets.
Boulder Equity Partners is here to help you choose the right commercial real estate loan at the best commercial rate available. As a nationwide lender for all commercial real estate loans, we offer a wide range of loan programs, from low-interest long-term products to quick-close options, bridge loan programs that can be migrated to long-term, and hard money loans.
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