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What is the difference between a refinance and cash out loan?

In commercial real estate lending, the basic difference between a refinance and a cash-out loan is similar to that in residential real estate lending.

A refinance loan in commercial real estate is a new loan that is used to pay off an existing loan on a commercial property. The primary purpose of refinancing a commercial property is to take advantage of lower interest rates or better loan terms, which can result in lower monthly payments, improved cash flow, or to change the term of the loan. Refinancing can also help to free up cash for other business needs, such as investing in new properties or expanding the business.

A cash-out loan in commercial real estate is a type of refinance loan that allows the borrower to take out a larger loan than the current outstanding loan balance. The excess amount is taken as cash at closing and can be used for a variety of purposes, such as funding renovations, consolidating debt, or investing in new properties.

The key difference between a refinance loan and a cash-out loan is that a refinance loan is used to replace the existing loan on the property, while a cash-out loan allows the borrower to take out additional funds beyond the existing loan balance. Both options have their advantages and disadvantages and require careful consideration of the costs and benefits involved. It is essential to evaluate the business’s financial situation and long-term goals to determine which option is best for the situation.

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