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Refinancing commercial real estate loans

On Behalf of | May 26, 2015 | Commercial Real Estate

Even though the economy continues to improve, business owners in Kansas may still find it difficult to refinance commercial property loans due to strict lending criteria introduced in the wake of the 2008 financial crisis. Lawmakers understood the challenges faced by business owners, and changes were made to the Small Business Administration’s 504 loan program following the crisis. The changes allowed entrepreneurs to refinance commercial loans on favorable terms, but the provisions expired in 2012 and have not been renewed by Congress.

The situation is made more urgent by more than $300 billion in commercial real estate loans that are scheduled to mature by 2017. Without access to the SBA 504 loan provisions, many business owners will struggle to refinance this debt. One option available to them is a 7(a) loan from the SBA. These loans can still be used to refinance commercial mortgages in certain situations, and 504 loans remain an option when the funds needed will be used to finance the purchase of equipment or machinery.

Research indicates that a significant amount of the maturing commercial real estate debt will require the injection of capital from borrowers to meet strict loan to value guidelines. Business owners would therefore be wise to approach lenders well before their loans are scheduled to mature. This will give them time to compare financing packages and provide them with a clear understanding of how much money they will be required to put down. Entrepreneurs could also urge their political representatives to revive the expired SBA 504 loan provisions.

An attorney with experience in commercial real estate financing could assist entrepreneurs as they assess their loan options. An attorney could also review the proposed loan agreement and bring provisions that may present problems in the future to the attention of the client.