If you have had a business for any length of time, you have probably run into periods where your available working capital is low. For example, although your budget may cover your everyday business expenses, you may have emergencies, such as equipment breakdowns, maintenance requirements or even natural disasters, that put a strain on your cash flow, and many lenders are reluctant to loan money to small businesses or those whose owners have had credit issues. However, did you know that you can use your commercial real estate to expand your working capital?
Types of Loans Available
If you have commercial real estate, you have a great asset you can borrow against. Even if you already have a mortgage on the property, you can apply for a second mortgage. Your property is still the collateral for both loans. However, the second lien’s interest rates will be higher because the first mortgage company is paid firs in the case of a default. In addition, second mortgage loans typically have shorter terms, where most are just five years.
You may also seek a cash-out refinance. In this instance, you take some or all of the equity out of your property in cash and refinance the loan to include the equity you removed. Rather than having two loans, your first mortgage is paid off with the new refinance loan. You can finance up to your property’s appraised value. You may also consider a simple refinance loan if you can get it at a lower rate because the payments will be lower, reducing your monthly expenses.
Loan Uses
You can use these working capital loans for property improvements. For example, some businesses or tenants require certain accommodations before they will consider a lease or purchase, and you can finance repairs or upgrades that will encourage these new tenants to move into your property. You may also use these funds to cover an emergency or other business issues, including equipment maintenance and repair or property damages.
You can use these loans for normal business operations expenses as well. For example, you can pay for advertising, payroll and monthly expenses. Real estate working capital can be used to keep your business up and running and to improve your efficiencies.
Pursuing debt financing is not ideal, but when your business is hit with an emergency and doesn’t have the working capital to solve the problem, commercial real estate working capital loans are a good option.