Using Commercial Real Estate for Working Capital

If you have been in business for a while, you understand that you sometimes need an influx of capital. You may have to recover from an emergency, a slow season or unexpected expenses. However, you can’t always go to a bank and get a loan, but if you have commercial real estate, you may already have the assets you need.

Types of Loans

You can use your business real estate in a number of ways. First, you can take out a mortgage if you previously paid off your property, and if you do have a first mortgage, you can take out a second mortgage using the equity in your real estate. Because the second mortgage lender has higher risk, you should expect a higher rate and a much shorter lien period, typically less than five years. Be sure you can use the funds well and pay it back quickly because second mortgages significantly increase your debt service and debt-to-income ratio.

You can also refinance your existing mortgage. You may receive a lower rate, and you can add business debt to your mortgage or refinance your existing business debt. The goal of this strategy includes reducing your monthly payments so you have extra cash for your more immediate expenses.

Finally, you can complete a cash-out refinance of your existing mortgage. A cash-out refi will give you the money you need. It still increases your debt load, but you don’t have two mortgages.

Business Real Estate Loan Uses

When you get a business loan, you have to give the lender a description of everything the loan will pay for. However, when you borrow against your property, you don’t have the same requirements or restrictions. You can finance new facilities or improve the condition of existing facilities. You should seek to get a new tenant into the building quickly.

You can also make other tenant improvements, including renovations or upgrades. You can finance equipment, advertising and payroll. If you have an emergency, you can use the money to recover. Finally, you can use the money to pay for any business expenses.

Loan Considerations

Not every business can benefit from a real estate loan. In fact, you should probably try more traditional financing options first. However, if you cannot get financing or you could not get enough to cover your expenses, you may choose a business property loan.

Conduct a thorough analysis of your financing options before you make a decision. Investigate all the pros and cons before signing any commercial real estate loan paperwork.