Specialist refinancing for hospitality property

Eligibility and what can disqualify a refinance

A commercial refinance turns on the current trade and a defensible valuation, because the new lender is lending against the income the asset produces now. They want to see the trading accounts and the EBITDA, or the rent roll and the operator's covenant, the trend in the trade, and a going-concern valuation that supports the new loan to value. They size the new facility so the trading income covers the debt service with headroom, applying a debt service or interest cover ratio, and they cap it at a loan to value against the revalued figure. What disqualifies you from refinancing? The common blocks are a trade that has fallen so the income no longer covers a sensible loan, a valuation that has dropped below the existing debt so there is no equity to lend against, a poor credit record or arrears on the current facility, a lease too short to support a term loan on a leasehold asset, or an early repayment charge on the existing debt so large that the refinance no longer pays. We check the accounts, the value and the redemption terms before we take a case to market, so we do not chase a refinance that will not clear the tests or will not net out positively.

Releasing equity and how much you can raise

How much a refinance can raise depends on how far the trade and the value have grown since the existing debt was put in place. The new loan is sized on the lower of two limits: a loan to value against the revalued going-concern figure, indicatively up to 65 to 75 percent, and an income test that sizes the loan so the trading income covers the debt service with headroom. On a strongly trading asset the income test is usually the binding constraint, so a higher, more secure EBITDA releases more than loan to value alone would suggest. What is the 80/20 rule in refinancing? It refers to the loan-to-value ceiling: a lender advances up to a set proportion of value and the owner retains the balance as equity, so at 80 percent the owner keeps 20 percent; on trading hospitality property the ceiling is usually lower, indicatively around 65 to 75 percent, and interest cover often caps the loan below even that. The cash released in a cash-out is the new loan less the facility repaid, so the more the asset has grown and the stronger the income, the more comes out. We model the achievable loan and the cash from the accounts and a sensible value before approaching lenders, and never gear past what the income covers. All bands are illustrative, subject to credit approval, and not an offer.

Rates, fees and when a refinance is worth it

A refinance carries the cost of putting new debt in place: a lender arrangement fee, indicatively around 1 to 1.5 percent, a going-concern valuation, legal costs for both sides, and, critically, any early repayment charge on the facility being redeemed. Against those costs sits the value of a keener rate, a longer term, or the equity released, and the refinance is worth doing when that value clears the costs with a margin. When is refinancing a bad idea? When the early repayment charge or the fees swallow the saving, when the rate improvement is too small to justify the effort, or when releasing equity gears the asset past what a seasonal trade can safely cover. The arithmetic usually favours a refinance off maturing short-dated debt or off an expensive early facility onto keener term pricing, but it is worth confirming the new rate, the fees and any redemption penalty net out positively before proceeding. We disclose our broker fee in writing, model the all-in position across the market, and never claim an exclusive tie to any lender. The figures are indicative and not an offer of finance.

Rate-only remortgage against a cash-out refinance

A commercial refinance splits into two purposes, and it is worth being clear which one you are doing. A rate-only remortgage replaces the existing debt at a similar size purely to improve the rate, the term or the structure, without drawing cash out, which suits an owner whose facility is maturing or overpriced but who does not need capital. A cash-out refinance replaces the existing debt with a larger loan and returns the difference as cash, which suits an owner whose asset has grown in value and who wants to release equity to reinvest or fund the next site, without selling and giving up the income and future growth. The alternative to both is a sale, which recovers the full equity but hands over the asset and the trade, so a refinance suits an owner who believes in the business and wants to recycle capital rather than exit. Where the need is short or operational, a business loan may beat a refinance on speed even if it costs more. We model the rate-only saving, the cash a cash-out releases and the alternatives so the decision is made on the numbers, not the label.