Is it a good time to refinance your commercial property?
JOHANNESBURG - Even as lockdown regulations ease and the economy reopens, many businesses continue to face serious cash flow issues that could force them into closure.
For business owners who find themselves in this unfortunate position, or are just looking to free up equity, one finance tool that may be worth considering is business property refinance.
What is business property refinance?
Essentially, refinancing is one of the most effective ways for business owners to tap into the equity in their property to secure cash on hand when needed. This is because, in addition to being considered tax-free, this capital can be used for any purpose and the interest can be deducted as an expense.
This means that refinancing can offer a feasible alternative for business owners who may otherwise need to consider selling the property, instead tapping into the equity in their property to secure cash on hand when they need it most.
Who is able to refinance commercial property?
If you own a business, and have acquired – or even started to acquire – your own premises (whether this be an office, warehouse, factory or retail space), the option of refinancing may be worth looking into. This is because, by acquiring rather than leasing your commercial property, you have effectively been building up an equity nest egg.
What benefits does refinancing offer?
In addition to the obvious benefit of freeing up cash flow, refinancing a property can result in more favourable loan terms for business owners. This is because, as a property owner’s position becomes stronger over time, they present less risk to the lender, which means the lender may consider offering more favourable terms, such as better interest rates or extended payment periods.
There are also potential tax benefits of refinancing a property because the SA Revenue Service allows for interest on property loans to be deducted as an expense. You also won’t be subjected to any of the taxes – like capital gains tax – that you would be if you sold the property.
Who can business owners approach for help?
Business Partners has been financing business premises for many years, whether industrial or commercial properties and to a lesser extent, offices. The company’s property finance caters to business owners with a viable business who want to refinance or purchase their own premises, but may have limited capital or security to contribute, or may not want to compromise the business’ cash resources for the deposit.
In most cases, conventional financiers require a cash deposit before considering financing a property deal. The deposit amount depends on the risk appetite of the financier and deposits of up to 50 percent may be required. Business Partners, however, allows the business owner a choice of different financing options and is able to structure the deal by advancing up to 110 percent of the financing required, subject to terms and conditions.
It is important for business owners to do their research in order to find a financier best suited for their requirements.
Ben Bierman is the managing director at Business Partners International