For commercial property owners nationwide, the pandemic and its fallout has had many repercussions. For some, it has resulted in the need or desire to raise funds by refinancing and securing loans against existing properties to free up cash, with various reasons for doing so.
Many commercial property owners have struggled over the past 15 months and had to pay creditors at the same time as their income dipped. If equity has built up in their business premises, refinancing can allow owners to unlock cash and pay off debts. Or a company may choose to consolidate and refinance its debt.
Pandemic winners have seen a spike in demand for services and seized opportunities to acquire and build their business. Although every acquisition case is different, the process can take place in a few weeks, allowing business owners to act quickly and snap up a distressed competitor.
If a commercial property has risen in value in recent years, refinancing is also commonly used to fund improvements. With many offices empty for months as staff work from home, for some there has never been a better time to refurbish assets. We have also seen many landlords with large property portfolios looking to raise finance for refurbishment and further investments, taking advantage of the continuing demand for rental properties.
Alternatively, the pandemic has given many businesses the opportunity for general financial housekeeping. It may be that a fixed-rate mortgage deal ended and scouring the market revealed more competitive rates. Switching banking facilities from one lender to another to secure a better deal can save a business thousands of pounds. Many have done this by taking part in the Incentivised Switching Scheme, which offers cash incentives to SMEs to transfer their business current accounts to another lender.
While due diligence for refinancing an existing property is similar to a purchase of residential property, generally speaking, the whole process should be more straightforward assuming all parties have the same objective. Whatever the reason for refinancing, every situation is unique and it is important to take a step back before you begin the process to make sure all stakeholders understand the commercial reasons for going down this route.
On any refinancing arrangement, there must be no conflict of interest between the parties at any stage. In a jointly owned family business, for example, all parties must be in agreement for the transaction to complete. If it becomes apparent that one party is not happy – perhaps they no longer think this option is in their best interest – the legal team will need to cease acting, wasting time and money in abortive fees. Your legal adviser will have a duty of care to act in the best interests of all parties, so it is better to make sure you are all aligned before committing.
Refinancing has become increasingly popular and can be advantageous. However, it is important property owners do their homework to understand what is involved and the long-term implications. For many, it has helped ensure their business survives as they continue to contend with the impact of the pandemic and for others, it has helped take them to the next level.
Whatever your reasons, it is advisable to seek a legal view to ensure a smooth and rapid completion.
Germaine Peters is senior associate in the commercial property team at law firm SAS Daniels
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