Commercial mortgage refinancing where 1) the existing mortgage has either come due, 2) the borrower wants to acquire incremental capital through a new mortgage, or 3) the lender has demanded repayment on a mortgage that is default or in breech of one or more of the mortgage covenants.
In any of these cases, a private commercial could range from the only choice available to the best choice available, even over bank or institutional offerings.
When utilizing private mortgage funds in a commercial mortgage refinancing situation, its important to be applying what a private mortgage can provide versus the specific requirements of the borrower.
In situations where the property or borrower is in some type of credit or cash flow distress where they may not be able to qualify with a bank or institutional lender for a mortgage renewal or a new mortgage to refinance their existing loan, a private mortgage can become the only true option available as the private lender is not going to have as strict a lending criteria on cash flow and credit that you would experience when applying to a conventional lender.
In situations where the business and/or property is generating sufficient income to service the debt, but the business does not want to pour most of the available cash flow into debt service in the short term due to other requirements, a private mortgage refinance can provide an interest only payment that can be considerably lower on a month to month basis compared to a fully amortized mortgage payment over 15 to 20 years.
Private commercial mortgages can also be structured to be open with no penalty or minimal penalty in the event of early prepayment.
So if you have an existing mortgage coming due on a property that you are likely going to be selling in less than a year, it may make sense to refinance the existing commercial mortgage with a private lender so that you potentially avoid both mortgage placement costs and some or all of the future prepayment penalty if you have to repay the mortgage early.
A private mortgage for commercial property financing is a tool that can be utilized in a number of situations in and above those where cash flow and credit are distress.
The key to utilizing private funds properly and profitability is in understanding the features available to you and how you can best apply them to a given commercial mortgage refinancing situation.
At the same time, private mortgage features and benefits are going to differ from one lender offering to another, so its going to be important to be working with an experienced private mortgage broker to make sure that you are properly utilizing this form of commercial property financing for your business.