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Everything You Need to Know about Refinancing Commercial Real Estate

By Anthony Kimaiyo

Most successful commercial real estate investors take advantage of refinancing to prevent their money from sitting in properties, which in turn enables them to spend less money. Refinancing commercial real estate allows you to pull out tax-free cash from the investment for renovations or repairs, which ultimately increases the rents. Your cash flow, cash-on-cash returns and your return on investment (ROI) also increase immensely.

Refinancing Commercial Real Estate

Commercial real estate owners may want to refinance their properties for a number of reasons. Some may be strained already by their current mortgage debt and would be looking to refinance to reduce the debt strain on their business operations. Others may be looking to increase their mortgage term, especially investors that presently have a bridge loan that will soon require payoff or renewal. Then there are those who own commercial real estate with an appreciated value (the property value exceeds the current mortgage balance) and are looking to tap into the investment’s equity to utilize it for other business reasons such as tenant improvements, build-outs or general operating capital.

What is a Commercial Mortgage?

Many people are familiar with home refinancing; that is, as your home equity (the value of your home minus the mortgage debt) goes up, you can get a better loan refinancing with better rates or you can pull out cash from the property. A commercial mortgage, on the other hand, is a business loan that uses a business property as a guarantee. Examples of properties that utilize commercial mortgages include investment and development real estate (like rental properties and apartment buildings) as well as owner-user real estate businesses (such as warehouses, office buildings, factories and retail buildings). Commercial mortgage loans, unlike home loans, may amortize over 30 years but mature in 5 to 10 years, which means you can refinance them or sell the property. Amortization here refers to the spreading out of the mortgage loan into a series of fixed monthly payments until the loan is paid off. Different mortgage lenders offer different types of mortgage loans; some offer short-term loan (1-2 years) repayment options, while others offer loans with repayment periods of up to 30 years.

Commercial Real Estate Refinancing Options

There are three main options for refinancing real estate:

  • Bank Commercial Mortgages – a conventional bank mortgage is usually the optimal choice for real estate owners looking to refinance into an all-rounded and healthier facility or decrease their monthly mortgage payments. Bank lenders offer commercial loans at fantastic rates, with repayment periods ranging from as low as 2 years to a maximum of 30 years.
  • Private Mortgage Lenders – these are private investment groups that provide non-bank and private commercial loans to investment groups and individuals. They can offer creative as well as aggressive financing options because they are not bound by many of the restrictions that limit the conventional mortgage lender. Private commercial real estate lenders give out bridge loans, cash-out refinancing, construction loans and d (the latest addition to the types of loans provided, and done via online portals where prospective investors evaluate risks).
  • SBA Mortgage Refinancing – many conventional lenders such as banks of all sizes, community lenders and credit unions, use Small Business Administration (SBA) enhancement programs to refinance commercial mortgages. Even though the loan secures the property, the SBA’s enhancement minimizes the risk faced by the commercial lender by covering a considerable percentage of the loan, should the borrower default once they get their loan refinanced by SBA.

How to Refinance a Commercial Real Estate Mortgage

Creditworthiness and the ability to show income for loan repayment are the usual principles followed when refinancing a commercial real estate mortgage or any other loan. However, don’t be fooled by any smooth mortgage processes you may have experienced before, as you won’t necessarily get an easy approval again, notably if your investment’s financial position has not improved. Refinancing a commercial mortgage can require more documentation and, to some extent, personal guarantors to ensure you will not default on loan repayments.

To refinance your commercial real estate loan, you will need at the very minimum to:

  • Prepare documentation – this will present a financial picture of your business. This will include at least two years of the business’s filed tax returns, cash flow records such as financial statements, and profit and loss statements. Expect to give out 12 months of financial records at the minimum. Lenders might also want a comprehensive executive summary and a business plan that shows your business growth direction.
  • Understand all the costs – Commercial lending, unlike consumer lending, is very expensive. Therefore, appraisal costs might go as high as $5,000 and even more for bigger properties. Banks won’t lend unless the appraisal indicates the property’s equity. You will also pay inspection fees, closing fees and origination fees associated with the loan. This means you also spend time away from your business, which translates to money spent away from your business.
  • Apply for the commercial mortgage – Once you have completed your analysis, apply for the commercial mortgage refinancing. Shop around for the best rates, allow banks to compete with your current loan, and negotiate any fees such as the origination fee. Lenders may request additional information and personal guarantors if needed after reviewing your financial package and business credit checks. The underwriter will then review your debt and income history. Just as with a personal loan, the underwriter needs evidence of a positive credit history and timely payments of bills before approving the refinancing.


Many lenders provide commercial real estate refinancing, which means a wide range of options for business or real estate owners to refinance their mortgages. Lenders offer different loan terms, rates and structures. Therefore, getting exactly the right loan for your business could be a long process due to the many lenders and many lending options available. If you require assistance with your commercial mortgage refinancing, please contact a refinancing expert.

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