The current economic expansion, the longest in U.S. history, has been made possible in part by the growth of small businesses. Consumer confidence is high, interest rates are steady, and entrepreneurs are starting businesses at a record pace.
The State of the Economy
Despite growth, risks to the economy remain, including rising trade tensions and increased costs resulting from new tariffs. A strong majority of economists recently polled by Reuters now put the chances of a U.S. recession happening in the next two years at 40%. Dr. Lawrence Yum, chief economist of the National Association of Realtors, now forecasts current price appreciation in commercial real estate to end by 2020. If you own commercial real estate property where you operate your business, you can capitalize on this strong economy.
Interest Rates Hold Steady
With this increased chance of recession, the Federal Reserve is expected to hold the Federal Funds Rate at current levels until the end of next year at least. This is in sharp contrast to the nine rate increases since December 2015. (Shown on the graph below.)
The chart below indicates that the Federal Reserve is expected to keep rates low and probabilities for an interest rate increase have decreased according to the Federal Open Market Committee (F.O.M.C).
How Commercial Real Estate Loans Are Affected
While nobody can predict the future, you can certainly plan for it with the information at hand. The slowdown in economic growth could be a blip on the radar or it could be an indication of instability to come. One certainty, however, is for those commercial real estate loans with a near term maturity or balloon payment, refinance risk exists. If the economy, your industry, or business has suffered a slowdown when the current lender comes to refinance your loan, there is a very real chance the loan may not be approved. If the property value has fallen below the amount owed, the lender may be concerned that there is a risk of loan default.
One strategy that takes advantage of the strong economy and equity in your commercial property is to refinance into a fully amortizing loan and avoid the risk of balloon payments altogether.
The Benefits of a Commercial Real Estate Purchase or Refinance
Unsure of exactly how a Commercial Real Estate purchase or refinance can grow your business?
Review this informative article from SmartBiz Loans®: Grow Your Small Business: Purchase or Refinance Commercial Real Estate.
This article can help you learn more about the benefits of owning Commercial Real Estate including tax advantages and more. Our article also gives you a list of what to consider before you purchase or refinance.