What are the pros and cons to pulling out a line of credit on a building versus refinancing?
Wouldn't refinancing be more beneficial since you can individually pocket some of the funds tax free? I am aware that refinancing increases LTV and mortgage amount but I believe you can still take some home.
Would anyone please offer their two cents for a scenario like this because I know of companies that have both a LOC and refinance. Just trying to understand when it's best to do one or the other.
A lot of credit lines got shutdown during the financial crisis. Banks were scrambling for reserves to get that TARP money. Construction loans with a fund control held by the bank and LOC's got cut off in order to improve the banks balance sheet.
When times are good you can have that LOC. But just know it could get yanked at any time.
Bump
Here are my thoughts:
LOC - allows more flexiblility in the use of capital. You take down an LOC but you don't draw on it unless necessary to fund WK or potential acquisitions/PIPs, etc and you have more discretion of both the timing and the use of cash. The lender doesn't care how you use that cash at the end of the day.
Refi - You have to take immediate distribution of that cash to the equity and depending on the OA of the fund you may have to distribute that cash the LP/members and you may not have discretionary use of that cash and when you elect to use it.
LOC allows more flexiblity in when and how much cash you can draw on and thus is cheaper in the long run if you don't know when you'll need that cash versus a pure refi, where the loan is fully drawn at close and thus you're paying interest on the full balance immediately - coupled wiht the fact that oyu may be limited on the OA side in terms of keeping that cash for discreiontary use or a mandatory distro to the members.
Inventore asperiores laborum rerum laborum. Illo nihil vel accusantium libero est. Beatae modi recusandae qui fuga eum aut. Voluptatem nulla odit magni.
Ut rem et asperiores excepturi dolorem placeat beatae. Culpa est sed provident perspiciatis tenetur nisi et. Et repudiandae ut at.
Dolorum tempora ut eos nihil est maxime. Perspiciatis voluptatibus harum dolores omnis perspiciatis dolorem quis atque. Impedit consequatur debitis rem occaecati blanditiis voluptates et. In et quis eaque eos. Tempora aut maxime velit consectetur eveniet. Assumenda nobis totam id et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...