Commercial refinances refer to the process of obtaining a new mortgage on a commercial property that you already own. This allows commercial property owners to access equity for various purposes, such as investments or purchasing new properties. Refinancing can also help reduce monthly repayments, provide more competitive interest rates, and alleviate cash flow pressure. 

However, it’s important to consider that taking on additional debt through refinancing is an added expense for your business. Refinancing over a longer period may extend the time it takes to repay your debts. Moreover, switching to a more competitive deal may involve additional borrowing costs, including broker fees and valuation fees, which can vary among lenders. Depending on your specific needs, you might find alternative funding solutions like bridging finance more suitable. It is advisable to consult with an independent broker to explore all available options before applying for a commercial mortgage refinance. 

The process of commercial refinancing is similar to re-mortgaging a residential property. An acting broker can assist you in finding the best deals and discussing loan terms and interest rates tailored to your investment or business requirements. 

The amount a commercial client can borrow depends on their ability to meet the lender’s affordability calculations. These calculations consider various factors and determine what your business can afford. Lenders tend to offer the best rates to businesses considered low risk, such as those with substantial equity in the property, a good credit history, and a strong trading track record. 

There are different types of commercial refinances, including: 

  1. Traditional commercial refinance loans: These loans are commonly used to refinance into a lower rate mortgage. The terms of the loan may resemble the original mortgage but at a reduced interest rate.
  2. Commercial cash-out refinance loans: This type allows commercial clients to tap into their property’s equity and receive cash. To qualify, the property owner typically needs to have significant equity, with many banks requiring at least 30% equity remaining after the cash is taken out. Commercial cash-out loans are often used for property improvements or tenant fit-outs.
  3. Commercial mortgage bridge loans: Investors may opt for bridge loans, which are short-term loans used to bridge the gap until long-term financing can be secured. Bridge loans typically have terms of two years12 months or less and often involve minimum interest payments and/or interest-only payments with a large balloon payment at the end. These loans usually come with higher interest rates, around one to three percentage points higher than the average market rate. They are useful for renovating a property that may not qualify for traditional mortgages before selling or obtaining long-term financing. 

Each type of commercial refinance loan has its own advantages and considerations, so it’s important to evaluate your specific needs and consult with professionals to determine the most suitable option for your circumstances. 

 Author: Jake Willifer