| During these difficult times business owners search for | | | | better than his existing, but the new payment will be |
| any angle on how to reduce costs. Consolidating | | | | $7,351 with a cash flow savings of $3,548 per month |
| business debt into commercial mortgages can be a | | | | or $42,576 annual. Looks appealing, after all he will |
| "clean" and relatively easy way to increase cash flow, | | | | have the cost to refinance the debt "paid back" in 2 |
| but there is risk and a cost to do this. | | | | months and will enjoy the discounted payment for |
| Commercial mortgages, and other debt, such as lines, | | | | years to come. But, should he really do this? It's a |
| equipment loans, business credit cards, etc are often | | | | tough call and one that only he can decide. |
| closely examined. Taking business credit card debt or | | | | In his case, his business is really struggling and the cash |
| short term equipment loans (that are often in around 7 | | | | flow savings will be a big relief both mentally and |
| year amortization schedules) and tying them into long | | | | financially. Frankly, it's a matter of survival for him. He |
| term, 25 year or 30 year amortization schedules can | | | | could use some of his personal savings to pay down |
| have dramatic impact on cash flow, (It's not | | | | the credit card and equipment debt but he is unwilling |
| uncommon to see a 60% savings or more) but the | | | | to do this. So in effect he is tying up $300,000 worth |
| borrower pays for this by paying higher interest | | | | of equity, and reduces his net worth by the same, and |
| amounts over the long term and reduces their wealth | | | | increasing his long term aggregate interest payments - |
| by using hard earned equity. | | | | no free lunch. Though do to his situation, I can see and |
| For example, I am currently working on an owner | | | | understand why he elected to go this route. |
| occupied facility in Arizona, it's a light industrial property | | | | However, if his situation was different, and his business |
| and my client has been in business for 7 years. The | | | | was more stable and making solid money I would |
| building appraised for $1,800,000 and has a current | | | | recommend that he look at other options first, like |
| mortgage of $850,000 with a monthly payment of | | | | paying down his debt the old fashion way - month by |
| $5,800 (25 year at 7%). He has over $300,000 of | | | | month. By down the business credit card first, then |
| equipment and business credit card debt with a total | | | | take those savings and apply them against the |
| monthly payment of $5,100 that is really hurting the | | | | equipment loans. He could look at possibly taking on an |
| company's profits. Total monthly payments between | | | | equity partner or perhaps refinancing his existing debt |
| the mortgage and various debts equals $10,900. | | | | but keeping it on the same amortization schedule and |
| We are combining that debt into a 10 year fixed, 30 | | | | keeping the debt tied to the existing assets. |
| year amortization mortgage, the rate is 6.8% only .20% | | | | |