Commercial Property Refinance
Commercial property refinance for owner-occupied, investment and mixed-use property, whether the objective is to replace existing debt, refinance a short-term facility, release capital or restructure the borrowing.
A refinance only makes sense if the new structure improves something.
Commercial property refinance should solve a defined problem.
A commercial property refinance replaces or restructures existing borrowing secured against commercial property. The new facility may come from the existing lender or from a different lender, but changing the lender alone does not necessarily improve the position.
The starting point is to understand what the borrower is trying to achieve. That may be lower ongoing debt cost, a longer term, repayment of a maturing facility, removal of expensive short-term finance, release of equity or a structure better suited to the property and cash flow.
We therefore compare the existing position with the proposed refinance rather than treating the transaction as a simple search for a new headline rate.
For broader information about commercial mortgages, see our Commercial Mortgages page.
Why commercial property is refinanced.
A commercial property refinance should reflect the property, existing debt, income and what the borrower wants the transaction to achieve.
Existing facility approaching maturity
A commercial mortgage or other secured facility may need replacing before its contractual repayment date.
Replace short-term finance
Bridging or another temporary facility may be refinanced once the property, occupancy or trading position is ready for longer-term debt.
Release equity
Additional borrowing may be possible where current value, existing debt and affordability support a larger facility for a defined commercial purpose.
Restructure borrowing
Existing debt may no longer match the ownership, cash flow, portfolio or long-term business strategy.
Property circumstances have improved
Increased occupancy, stronger trading performance, improved leases or completed works may create access to a different part of the lending market.
Existing lender no longer fits
The lender’s appetite, pricing, structure or future plans may no longer align with the borrower or the property.
Owner-occupied and investment refinance are assessed differently.
| Main repayment source | Owner-occupied: sustainable trading cash flow from the business. | Investment: sustainable rental income from the property. |
|---|---|---|
| Main evidence | Accounts, management figures, bank statements and relevant business information. | Leases, rent schedule, tenant details, arrears and property investment information. |
| Core lender risk | Business performance, sector, cash-flow resilience and ability to service debt. | Tenant covenant, lease expiry, void risk, rental cover and reletting prospects. |
| Property test | Current value, alternative demand and the property’s usefulness to the occupying business. | Investment value, rental market, liquidity and saleability. |
What lenders assess on a commercial property refinance.
The new lender is not simply refinancing the old lender’s decision. The transaction is underwritten again against the position that exists today.
Current property value
The lender’s valuation determines the value against which the proposed loan-to-value is calculated.
Existing debt
The redemption balance, charges and any other secured borrowing need to be understood before the net refinance position can be established.
Affordability
Rental or trading income needs to support the proposed facility after the lender’s own stress and adjustments.
Property and leases
Use, condition, tenure, occupancy, lease terms, marketability and alternative demand can all affect lender appetite.
Borrower
Experience, financial conduct, ownership structure and the quality of the information supplied remain relevant even where the property has substantial equity.
Purpose of funds
Where the refinance includes capital raising, the lender will normally want to understand why the additional borrowing is required.
Does the refinance actually improve the position?
A lower nominal interest rate does not automatically mean the refinance is better. Commercial property transactions can involve arrangement fees, valuation, legal work, broker fees, security costs and charges associated with repaying the existing facility.
Term, repayment profile, interest-only availability, covenants, personal guarantees and flexibility can also matter as much as the quoted rate.
The relevant question is not simply “Can I refinance?” It is “What does refinancing improve?”
| Current debt cost | Interest, fees and repayment profile under the existing facility. |
|---|---|
| New facility cost | New interest cost plus arrangement, valuation, legal and other transaction charges. |
| Term | Whether the refinance provides sufficient long-term certainty for the property or business plan. |
| Capital released | Additional net borrowing after repaying existing debt and transaction costs. |
| Affordability | Whether the proposed debt remains comfortably supportable by rental or trading cash flow. |
| Flexibility | Early repayment terms, covenants, security and ability to accommodate future plans. |
Test the refinance before approaching a lender.
Use the Workspace to examine current debt, proposed borrowing, leverage, cash requirement, finance costs and the effect of changing assumptions before deciding whether the refinance structure makes sense.
Refinancing commercial property to release equity.
A refinance may include borrowing above the amount required to repay the existing lender, creating a net capital release.
The property may contain substantial equity, but the lender will still consider whether the enlarged borrowing is affordable and why the additional funds are required.
Common commercial purposes can include business expansion, property acquisition, investment, debt restructuring, equipment or other clearly defined business requirements.
The fact that equity exists does not mean that all of it can necessarily be borrowed.
Refinancing a bridge onto longer-term commercial finance.
A bridging facility may have been used because the original property purchase was time-sensitive, the asset required work, occupancy was incomplete or the longer-term lending case was not ready at acquisition.
The commercial refinance is a separate credit decision. The proposed term lender will consider the property and borrower as they stand when the refinance is requested.
If the exit depends on rental income, occupancy, completed works or improved business performance, those assumptions need to be achieved and evidenced before relying on the refinance.
Timing matters. A bridge approaching maturity should not be treated as though commercial refinancing can be arranged instantly. Valuation, underwriting and legal work still need to complete.
What we need to understand the refinance.
A useful first discussion does not require a complete lender application. We need enough information to establish the existing position and what the proposed refinance is intended to achieve.
- Property address, type and current use
- Estimated current value
- Existing lender and approximate redemption balance
- Current interest rate, term and maturity date
- Proposed new borrowing requirement
- Reason for the refinance
- Rental or trading income
- Ownership and borrower structure
For property in England and Wales, HM Land Registry can provide title information including ownership, tenure and registered mortgages. This can help establish the starting position, although the lender’s solicitors will carry out their own formal title and security checks.
Understand the existing debt before selecting the replacement lender.
Understand
Establish the property, existing debt, income, borrower and objective of the refinance.
Test
Consider valuation, leverage, affordability, costs and whether the proposed structure improves the position.
Prepare
Assemble the financial, property, lease and ownership information required to explain the transaction clearly.
Source
Approach lenders whose appetite fits the property, borrower, leverage and purpose.
Complete
Manage valuation, legal work and lender conditions through to redemption of the existing facility.
Problems are easier to solve before the maturity date.
Lower valuation
A lower current value can reduce the available refinance loan and increase the amount of cash needed to redeem the existing lender.
Affordability shortfall
A property may contain enough equity but still fail to support the proposed debt on rental or trading cash flow.
Existing debt too high
The current redemption figure may exceed the amount a new lender is prepared to advance.
Lease or occupancy problems
Vacancies, short leases, arrears or weak tenants can affect both sustainable income and valuation.
Legal or title delay
Existing charges, restrictions, leases, planning or title issues can prevent a refinance completing on the expected date.
Starting too late
Waiting until the existing loan is close to maturity reduces the time available to deal with valuation, lender or legal issues.
Commercial property refinance questions.
What is commercial property refinance?
Commercial property refinance replaces or restructures borrowing secured against commercial property. It may be used to repay an existing lender, replace short-term finance, release equity or move onto a more appropriate long-term facility.
Can I refinance an owner-occupied commercial property?
Potentially. The lender will normally assess the property alongside the occupying business’s sustainable trading cash flow, existing debt, leverage, credit position and the purpose of the refinance.
Can I refinance a commercial investment property?
Potentially. Lenders generally consider the property’s value, rental income, lease terms, tenant quality, loan-to-value, ownership structure and the sustainability of the proposed debt.
Can commercial property be refinanced to raise capital?
Potentially. Capital may be released where the property value, existing debt and affordability support additional borrowing and the proposed use of funds is acceptable to the lender.
Can a bridging loan be refinanced onto a commercial mortgage?
Sometimes. The property and borrower must meet the proposed commercial lender’s criteria at the point of refinance. Valuation, income, occupancy, leases, trading performance and the amount of debt to be repaid can all affect the exit.
What costs should be considered when refinancing commercial property?
Costs can include lender arrangement fees, valuation, legal work, broker fees where applicable, charges for releasing existing security and any early repayment or exit costs under the existing facility.
How long does commercial property refinancing take?
Timescales depend on valuation, legal work, title, leases, accounts, borrower structure and lender due diligence. A refinance should normally be started well before the existing facility reaches maturity.
Other commercial property finance.
Discuss a commercial property refinance.
Tell us the property value, existing debt, current lender, maturity date, income position, proposed new borrowing and what you want the refinance to achieve.
EAS Finance is a trading name of Elite Admin Services Ltd (FRN 1044838), an Appointed Representative of White Rose Finance Group Ltd. EAS Finance is a credit broker, not a lender.
This page concerns commercial, investment and business-purpose property finance. EAS Finance does not arrange regulated owner-occupier residential mortgages.
Finance is subject to valuation, borrower circumstances, lender criteria and satisfactory legal due diligence. Property or other assets offered as security may be at risk if repayments are not maintained.