Business Debt Refinancing

During these difficult times business owners search for any angle on how to reduce costs. The debt consolidation companies in commercial mortgages can be a "clean" and relatively easy to increase cash flow, but there is a risk and cost to do this.

Commercial mortgages and other debts, such as lines, equipment loans, credit cards companies, etc. are often closely examined. Taking the credit card debt or loans to companies in the short term equipment (often in paintings of amortization of approximately 7 years) and link them in long-term, 25 year or 30 year amortization schedules may have dramatic impact on cash flows, (It is not uncommon to see a 60% savings or more), but the borrower pays for it by paying higher interest charges on long-term reduced their wealth through hard earned capital.

For example, I'm working on an owner occupied facility in Arizona, it is a property of light industry and my client was in operation for 7 years. The building valued at $ 1,800,000 and has an existing mortgage of $ 850,000 with a monthly payment of $ 5,800 (25 years at 7%). He has more than $ 300,000 in equipment and debt credit card companies with a total monthly payment of $ 5,100 which is really bad company profits. Total monthly payments between the various mortgages and debts equivalent to $ 10,900.

We combine that debt into a fixed 10 year, 30 year amortization mortgage, the rate is 6.8% only .20% better than its current, but the new payment will be $ 7,351 with an economy of cash flows $ 3.548 per month or 42,576 dollars per year. Looks call, after all, it will cost to refinance debt "repaid" in 2 months and will benefit from reduced payment for years to come. But should it really do that? It's a difficult decision and that he alone can decide.

In his case, his company is really in trouble and saving cash flow will be a great relief to both mentally and financially. Frankly, it's a matter of survival for him. It could use some of his personal savings to pay the credit card debt and equipment, but it is not prepared to do so. So, in fact, it is attaching a value of $ 300,000 in equity, and reduces its value by the same net, and increasing interest payments on general long-term - no free lunch. Although done for his situation, I can see and understand why he chose to go that route.

However, if the situation was different, and its activity was more stable and stronger to make money I recommend looking for other options first, such as paying down its debt to the former - from month months. At the bottom of the credit card companies first, then take those savings and apply them on equipment loans. It could consider possibly taking on a financial partner or perhaps refinance its existing debt, but keep the same level of depreciation and maintenance of existing assets related debt.