Commercial Loan Refinance

If you want to refinance your existing commercial property loan with a new facility, either with your current lender or a different one, then commercial property refinance loan is the best for you.

As a business, there can be multitude of reasons why you may want to refinance, it could be lower interest rates, better loan terms, more suitable repayments, debt consolidation, or even access to equity present in the property.

The rate matters but it shouldn’t be the sole driver of the decision. Commercial property financing often involves things such as valuation fees, discharge costs, application fees, as well as other expenses.

The new lender might also assess your business, property, and loan differently from your existing lender. A good refinance improves the position of your business after these costs and lending conditions are taken into account.

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What Is Commercial Property Refinancing?

Commercial property refinancing means replacing an existing commercial property loan with a new commercial loan.

The new loan pays out the existing facility at settlement. You then make repayments under

the terms of the new commercial property loan.

You do not always need to move banks. Your current lender might agree to reprice your existing facility or offer different terms when you tell them you are considering refinancing.

A commercial loan refinance might involve:

• Moving to another lender for a lower interest rate
• Changing the loan term
• Restructuring repayments
• Consolidating business debts
• Releasing equity from the property
• Moving away from a lender whose policy no longer suits the business
• Refinancing from specialist finance to a mainstream commercial lender after the business position improves

The last point matters for borrowers who originally needed a low-doc, specialist or credit-impaired commercial loan. A higher-cost facility used to solve a short-term lending problem does not necessarily need to remain in place for the full loan term.

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Why Refinance A Commercial Property Loan?

The strongest reason to refinance a commercial property loan is that the new facility leaves your business in a better financial or borrowing position after the costs of changing loans.

Common reasons include:

Reduce The Interest Cost

A lower commercial refinance rate reduces the interest charged on the debt, although the size of the savings depends on the loan balance, remaining term, fees and structure of the new facility. Commercial loan pricing is often assessed individually. Property type, loan size, LVR, borrower strength, business financials and the wider banking relationship all influence the terms offered.

Improve Business Cash Flow

Refinancing might reduce scheduled repayments through a lower rate or different loan structure. Be careful when comparing repayments alone. Extending the loan term can lower monthly repayments while increasing the amount of interest paid over time.

Consolidate Business Debt

Some borrowers refinance commercial property to combine debts such as business loans, overdrafts or other finance into a facility secured against commercial property. The lender will still assess why the debts arose and whether the business has enough income to service the refinanced amount.

Release Commercial Property Equity

If the property has increased in value or the loan balance has fallen, refinancing might allow you to borrow against part of the available equity. The funds might be used for another property purchase, equipment, renovations or business expansion, subject to lender approval.

Change Lender

Sometimes the problem is lender policy rather than price. The commercial refinance case supplied for this page involved a customer who wanted to purchase a landfill site with a long-term waste-management tenant. His existing lender would not accept the landfill property as security.

Another bank agreed to consider the purchase on the condition that the customer transferred his existing commercial debt facilities as part of the deal. The refinance therefore became part of a larger commercial finance decision. Changing lenders gave the customer access to a property his existing bank would not finance.

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When Should You Refinance A Commercial Loan?

There is no single point when every borrower should refinance a commercial loan. It makes sense to review the facility when something material has changed. That might include:

• Your fixed-rate period is approaching its end
• Your interest rate no longer looks competitive
• Your business financials have strengthened
• The commercial property has increased in value
• Your existing lender will not support another purchase
• You need funds for business expansion
• Your current loan structure is restricting cash flow
• You want to consolidate other business debts
• You originally used specialist finance and now qualify for a different type of lender

Before refinancing, calculate how long the savings or business benefit will take to recover the switching costs. A lower rate that saves $5,000 but requires $15,000 in refinancing expenses needs to be considered differently from a refinance that also gives the business access to funding it could not otherwise obtain.

Commercial Property Refinance Rates

Commercial property refinance rates are priced differently from standard residential home loans. There is rarely one commercial property refinance rate that applies to every borrower.

A lender might consider:

• The commercial property type

• Property location

• Loan amount

• Loan-to-value ratio

• Business profitability and cash flow

• Borrower experience

• Lease arrangements

• Tenant quality

• Remaining lease term

• Loan purpose

• Credit history

• Existing debts

• The wider banking relationship

Commercial pricing is also negotiable in many situations. This makes headline rate comparisons less useful than they are in residential lending. Two businesses refinancing similar loan amounts might receive different pricing because the lender assesses their properties, industries and financial positions differently.

Compare the interest rate together with application fees, ongoing fees, valuation costs, loan conditions and any requirements to move other banking facilities.

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How Much Can You Borrow When Refinancing?

The amount available through a commercial property refinance depends largely on the lender’s acceptable LVR and its assessment of your ability to repay the loan.

Commercial lenders usually assess the current property valuation, existing commercial loan balance, proposed refinance amount, property type, location, rental income, business income, cash flow, liabilities, and the purpose of the proposed loan.

Higher-risk or specialised commercial properties often attract more conservative lending than standard properties with broad resale demand. The valuation also matters more than many borrowers expect. A refinance application based on the owner’s expected property value can change significantly if the lender’s commercial valuation comes in lower.

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Can You Release Equity When Refinancing Commercial Property?

Yes. Commercial property refinancing can include an equity release where the lender accepts the purpose and the property has enough usable equity.

For example, a business owner might refinance commercial property and use the additional funds for purchasing another commercial property, business expansion, equipment, property improvements, working capital, and approved debt consolidation.

The lender will usually want a clear explanation of how the released funds will be used.

Purpose matters. A lender might be comfortable with equity being released to fund an established business expansion but take a different view if the funds are needed because the business is struggling to meet ongoing expenses. Some specialist lenders also accept purposes that mainstream commercial lenders do not.

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Should You Stay or Switch Your Commercial Lender?

Before switching, always ask your current lender if they can offer a better deal.

Retaining an existing customer is cheaper for banks, so their retention teams often provide heavy rate discounts or fee waivers (such as covering stamp duty) to keep your business. Furthermore, you must consider the broader relationship.

For example, does your current lender understand your industry? If you run a high-turnover service business, you need fast access to trade finance and EFTPOS facilities. The time and effort involved in moving transaction accounts to another lender can be daunting, so the new deal must be comprehensively better to justify the move.

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Costs Of Refinancing A Commercial Property Loan

Commercial property refinance costs vary widely between lenders, properties and loan structures.

Potential costs include commercial property valuation fees, new loan application fees, settlement fees, mortgage discharge fees, government registration charges, legal costs, break costs on an existing fixed-rate facility, and other lender-specific fees

Commercial valuations deserve particular attention.

A specialised industrial, hospitality, healthcare or purpose-built property might require a more detailed valuation than a straightforward commercial property.

Before proceeding, calculate the total cost of leaving the existing lender and establishing the new loan. Then compare that amount with the expected interest saving, repayment benefit, additional borrowing capacity or strategic benefit of changing lenders.

The refinance case supplied for this page shows why this calculation needs to consider more than the rate. The customer faced about $40,000 in refinancing expenses as part of moving a large commercial debt facility.

The new lender’s willingness to finance the landfill acquisition made those costs part of the commercial decision rather than simply an expense attached to a cheaper interest rate.

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Commercial Property Refinance Requirements

Commercial property refinance requirements vary between lenders. A lender will usually want enough information to assess both the property offered as security and the borrower responsible for the debt.

You might need to provide:

• Tax returns

• Bank statements

• Property information

• Identification documents
• Existing loan statements

• Details of business liabilities

• Commercial lease documents

• Company or trust information

• Business financial statements

• Details of the proposed refinance purpose

Some refinance applications are assessed using full business financials. Other borrowers might qualify under low-doc or lease-doc lending policies.

Low-Doc Commercial Refinance

Low-doc commercial refinancing is designed for borrowers who cannot provide the same level of traditional financial evidence required under a standard commercial application.

The lender will still require evidence supporting the loan and your ability to meet the repayments. If stronger financial evidence becomes available later, refinancing again into a different commercial loan might reduce the cost of the debt.

Lease-Doc Commercial Refinance

Some specialist commercial lenders place greater weight on the rental income generated by the property. These loans can suit particular commercial investment properties with established leases, although lender requirements vary according to property type, lease terms and the strength of the transaction.

Commercial Refinance With Credit Problems

Past defaults, arrears or other credit problems do not automatically mean a commercial property refinance is unavailable.

They do reduce the lender options.

Specialist lenders assess some borrowers who fall outside mainstream commercial bank policy. The cost and loan conditions are often different, so borrowers using specialist finance should consider whether there is a path back to a mainstream lender once the credit or financial position improves.

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How To Refinance A Commercial Property Loan

Commercial property refinancing generally follows these steps.

1. Review Your Existing Commercial Loan

• Current interest rate

• Remaining loan term

• Fixed or variable rate

• Break costs

• Discharge fees

• Annual review requirements

• Security held by the lender

• Other business facilities linked to the bank

This establishes what you are giving up before comparing replacement loans.

2. Define What The Refinance Needs To Achieve

Be specific. A borrower seeking a cheaper interest rate should assess the refinance differently from a business seeking another $500,000 for expansion. Your objective affects which lenders and loan structures are relevant.

3. Compare Commercial Lenders

Compare the entire facility rather than the advertised rate. Look at pricing, fees, LVR, loan term, repayment structure, financial-document requirements and the lender’s policy for your property type. Your existing lender should also be included in the comparison. Moving lenders creates work and expense, so a retention offer might solve the problem without requiring a full refinance.

4. Get The Commercial Property Valued

The new lender normally requires an acceptable valuation before confirming how much it is prepared to lend. The resulting valuation determines the LVR and might change the proposed loan amount.

5. Submit The Refinance Application

The lender assesses the borrower, business, property and refinance purpose. Avoid submitting applications to several lenders simply to see what happens. Formal credit enquiries can appear on your credit file. A commercial loan mortgage broker can compare lender policy before a formal application is submitted.

6. Discharge The Existing Loan

After formal approval and documentation, the outgoing lender prepares the loan for discharge. The new lender pays out the existing commercial mortgage at settlement and takes the agreed security for the new facility.

7. Review The New Facility After Settlement

Check that the interest rate, repayment structure, limits and linked facilities match the approved terms. Businesses that refinance to solve an immediate finance problem should also review the facility later if their financial position improves.

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Is Refinancing Your Commercial Property Worth It?

Commercial property refinancing is worth considering when the financial or strategic benefit exceeds the cost and disruption of changing loans.

Start with four questions:

• What will the refinance cost?
• What changes under the new loan?
• How long will it take to recover the switching costs?
• Does the new lender give the business something the existing lender cannot?

Price is only one part of the calculation. The commercial refinance case supplied for this page illustrates the difference. The customer’s existing bank would not finance the landfill property he wanted to purchase. Another bank would fund the deal if he transferred his existing facilities.

The refinance involved about $40,000 in costs. The customer proceeded because transferring the debt gave him access to a $10 million facility and allowed the proposed property transaction to proceed.

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For another borrower, paying substantial switching costs for a small rate reduction might produce a completely different result. A commercial refinance should therefore be judged against the objective you are trying to achieve, not against the interest rate alone.

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Refinance Your Commercial Property Loan

Home Loan Experts can assess your existing commercial property loan, the property offered as security and what you want the refinance to achieve. We can then compare suitable commercial refinance options from our lender panel and identify where lender policy, pricing or loan structure differs.

Call 1300 889 743 or complete our free assessment form to discuss refinancing your commercial property loan.