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Top 4 Refinancing Loans for Industrial Real Estate in 2023
Our top four options for industrial property refinancing include SBA 504 and life company loans, but there are important caveats to understand for each.
Why Refinance Your Industrial Property?
You probably landed here because you’ve got a loan on an industrial property already, and you’re curious about refinancing as a way of improving your investment’s outcomes. That, or your loan is about to mature, and you’re scrambling to see what your best options are.
Whatever the reason is, this article’s for you.
Refinancing industrial real estate can provide numerous benefits. From getting to an improved financial position to freeing up equity, there are plenty of reasons to go for a refi, even if your loan isn’t nearing maturity. However, finding the right refinancing option can be a major challenge, given the variety of loan types available.
The 4 Best Refinancing Loans
Here are four top options for industrial property refinancing, along with their pros and cons.
Bank loans can be a great choice for refinancing an industrial property, though it must be noted: Bank loans are as varied as they are numerous. They can offer fixed or variable interest rates with very different loan terms, amortization periods, and loan-to-value requirements.. You can pick the repayment plan that suits you best. However, banks can be picky about who they lend to. You need a good credit score and low debt-to-income ratio to qualify.
Banks can often be more cautious than many other lenders. This means the underwriting process can be strict. You may need to offer significant collateral, and full recourse loans are more likely. If you qualify, you can often save money on interest, free up some equity, and improve your financial position. If you don’t quite meet the qualification standards of one bank, though, that doesn’t mean another bank isn’t willing to do business with you. However, be warned that this could mean increased financing costs or less advantageous loan terms.
Life Company Loans
Life company loans are another option for industrial property refinancing. These loans typically have fixed rates that can help borrowers save money when rates are on the rise. They have long repayment terms, which can make monthly payments lower. However, they are not as flexible as bank loans.
Life companies have strict underwriting guidelines. It’s often not enough for you as a borrower to have impeccable credit — most life companies won’t look at anything apart from institutional-grade industrial assets outside major industrial markets. On the plus side, life companies typically offer larger loan amounts than banks and generally provide non-recourse options. If you meet the requirements and want a long-term fixed rate, a life company loan could be a good choice for you.
SBA 504 Loans
SBA 504 loans are another popular option for industrial property refinancing. These loans, backed by the Small Business Administration, come with low, fixed rates and extended repayment terms, making them an affordable choice for many borrowers. However, they are more complicated than other loan types and require the property to be occupied by your small business. In other words, if you own the property purely as an investment, this one’s not for you.
SBA 504 loans require a Certified Development Company (CDC) to administer them. This can make the loan process longer and more complicated. CDCs are nonprofit organizations that work with the Small Business Administration (SBA) to provide financing to small businesses.
Broadly, SBA 504 loans have lenient underwriting standards, making them an attractive option for borrowers with lower credit scores or a less lengthy financial history. Just remember that any borrower should be prepared to navigate the additional requirements.
Bridge loans aren’t usually what investors think of when it comes to refinancing, but there are situations in which they’re a great option. These loans typically have high interest rates and loan terms of no more than two or three years, but if you need to stabilize your property, renovate it, or repair it, they can be a good stopgap solution. These loans typically close fast, and many are available with interest-only payments, too.
However, if you’re going to get an industrial property refi with a bridge loan, you’d better have a plan to shift to a longer-term loan or sell the asset in the near future, as they’re far too expensive to serve as any kind of permanent financing — even if the lender is willing to extend the term a bit.
How Do I Know Which Loan Is Best for Me?
All of the loan types above can be great options, but they’re not all likely a perfect fit for you. While we’ve presented each of the typically best-fit loans above in some detail, we strongly advise doing some additional homework before moving forward with any financing.
Better yet, fill in the form below and we’ll provide you with quotes of your best options — whether they’re SBA 504 loans, bank or life company loans, or even some others we didn’t discuss today. It’s easier to compare everything available to you side by side, after all.