When it’s all over the news that interest rates have dropped, the first thing many consumers think about is their home mortgage. As a business owner, you may wonder if the news you see from the Fed or your home lender can also provide savings on your commercial loan. 

The reality is it’s not as simple as calling your business banker, locking in a new rate, and ordering an appraisal. The commercial banking world has nuances that make the process different than refinancing your house. 

Below are three common-sense steps commercial loan borrowers can use to help investigate interest rate fluctuations in the market.  

1. Talk to your business banker, with an understanding that commercial rates are very different than residential home loan rates.

There are various factors that go into pricing commercial loans. At times quoting rates is more “art” than science. This a great opportunity to lean on a trust-based relationship with an experienced banker to help you navigate the current market conditions. He or she should have transparent answers to your questions about their bank’s ability to help you take advantage of a lower rate environment. 

2. Review the terms of your current loans that are in place.

Specifically, review your promissory note and look for the prepayment language.  Over time, banks have moved toward placing prepayment language in their loan documents as a standard part of the structure terms. If you do have a prepayment provision, go about performing the calculation of the penalty to determine how it will potentially add to the cost of refinancing your loan.  

Prepayment provisions can vary – don’t hesitate to call your banker to get the correct calculation. This is especially true if you have “yield maintenance” prepayment penalty, which can give a borrower significant “sticker shock” when they request a loan payoff statement.

3. Make balanced decisions.

A good banker strives to be relationship-focused with their clients. As a borrower, I encourage you to thoughtfully weigh the value of the relationship you have with your bank and banker with any potential lower rate proposal from another bank. Rates will continue to fluctuate and its good business practice to explore ways to save your company money by lowering your cost of financing.  

However, there’s more to switching banks than just dollars and cents. The strength of the economy and your industry can also change. Saving some interest cost now by moving to a new bank might not be the best decision for your business long-term if you can’t count on your bank to support you when times get tough. Those that experienced the credit markets during the Great Recession can attest to that.

About the Author

Jeff Duffrin serves as senior vice president of business banking at Fortifi Bank. Based out of Fortifi’s Green Bay branch, he helps business owners throughout northeast Wisconsin start, grow, and take their business to the next level. He has over 20 years of commercial banking experience throughout the greater Green Bay area. Jeff holds a bachelor’s degree in Business Administration from St. Norbert College in De Pere, WI.

jduffrin@fortifibank.com | 920.354.4072

Buying a Wisconsin Home?

Our free Home Buying Guide is filled with local knowledge from Fortifi Bank experts.

HOME BUYING GUIDE

Grow My Business
March 11, 2020

3 Things Commercial Loan Borrowers Should Do When Interest Rates Drop

When it’s all over the news that interest rates have dropped, the first thing many…
Read More
Grow My Life
February 17, 2020

You Need a Financial Checkup After These Life Events

Has a change occurred in your life recently? Significant life changes can have a big…
Read More
Grow My Life
November 13, 2018

Take Control of Your Finances

A personal financial manager (PFM) makes money management simple. Did you know, on average, Americans…
Read More
Grow My Life
September 20, 2017

Understanding Social Security

When approaching retirement, you may be faced with important decisions that will impact your financial…
Read More
Grow My Life
June 20, 2017

2 Ways to Protect Your Hard Earned Cash From Disappearing

The United States is the largest advertising market in the world.  In 2015, $180 billion…
Read More
Grow My Life
June 2, 2017

Make Saving a Family Activity

Increased responsibilities, obligations, and societal changes create more demand on our time.  Technology has influenced…
Read More
Grow My Life
February 9, 2017

How to Keep Student Loan Debt From Clouding Your Financial Picture

What do you want to be when you grow up? Remember being asked that question…
Read More
Grow My Life
February 2, 2017

3 Ways to Improve Your Credit Score and Get a Better Loan

Think back to when you were about to make your first big purchase that required…
Read More
Grow My Life
January 27, 2017

5 Responsible Ways to Spend Your Tax Return

So you’ve finished your taxes (congratulations!) and you’ve got some money coming back. A tax…
Read More
Grow My Life
January 20, 2017

5 Steps to Fresh Finances in a New Year

Whether or not your family made New Year’s resolutions in January, taking control of your…
Read More
Grow My Life
December 11, 2016

You Landed Your First Job – Now What?

It’s official – You’re employed. Whether your parents were nagging you to get a job…
Read More
Grow My Life
November 23, 2016

Tips to Avoid Overspending During the Holiday Season

While we can’t help you decide what to get your friends and family this holiday…
Read More

Brought to you by Fortifi Bank

Secured By miniOrange