The Working Capital Guide

Refinance Working Capital

by Stephen A. Bush

Commercial Refinancing

For a business owner faced with decreased sales and cash flow, the need to consider whether to refinance working capital financing has become much more timely and critical. In some situations business owners are being forced to refinance existing loans by current lenders, and in other cases they are attempting to secure additional cash. With both short-term commercial financing and long-term commercial real estate loans, refinancing difficulties are currently occurring.

There are some business finance circumstances that will be harder to refinance. SBA financing and business opportunity loans are two scenarios that are especially difficult to refinance. A third example is now emerging as equally difficult, and this involves the need to refinance working capital loans and replace an existing business line of credit with new financing arrangements.

Revising commercial mortgage loans in which there is business property serving as collateral is a more traditional form of refinancing. Because many banks have decided to stop making commercial loans, some borrowers will need to refinance simply to replace their existing commercial mortgage. Small business owners are being forced to explore refinancing options in order to get capital from their business equity to support their business financing needs in a slow economy. In either case, business borrowers are increasingly discovering that commercial refinancing is not as straightforward as it might have been in the past. 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. Many merchants are showing losses on recent tax returns and financial statements because of financial fluctuations. Recent losses are likely to be a significant difficulty when attempting to refinance commercial loans and commercial mortgages because lenders want current cash flow to cover debt payments.

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

Business Refinancing

Refinance Business Debt