Pros and Cons of Commercial Loan Refinancing

David Cohn
Jul 12, 2021

Commercial mortgage loan refinancing works similarly to residential refinancing and offers the same benefits. The advantages include:

  • Lower interest rates.
  • The option to consolidate debt.
  • The ability to cash in on the equity you’ve already built up in the property.

It’s important to carefully weigh the pros and cons of commercial loan refinancing to ensure that the outcome is favorable to you in the long run.

What does it mean to refinance a commercial property?

Commercial mortgage loan refinancing involves taking out a new loan to replace your existing business property loan. If done correctly, refinancing can allow you to take advantage of lower interest rates and better loan terms.

It can also let you borrow cash against the equity you’ve built in your business property. You can use the proceeds to buy more inventory, purchase new equipment, or whatever else you need to do to grow your business.

What are the reasons to consider refinancing your commercial property?

There are many reasons to refinance a commercial mortgage loan. Let’s discuss the specific benefits of refinancing a business property:

  1. Lock in lower interest rates

Perhaps the most compelling reason for refinancing is that it can unlock lower interest rates and longer terms—which ultimately means smaller monthly payments. When you refinance, your business can potentially save money and free up some funds for other purposes.

  1. Improve your cash flow

With lower interest rates, you can reduce your annual debt service and improve your cash flow. This can allow your company to put money on whatever area of operations you need to improve in order to become more viable and profitable.

  1. Get a longer-term

If you currently have a 10-year mortgage, you can potentially refinance to a 25-year mortgage. This will automatically lower your monthly payments.

  1. Consolidate debt

Do you have various loans? It might be a good idea to consolidate them into one using refinancing. At least at face value, it makes sense to replace high-interest debts with one low-interest mortgage.

  1. Disbursement of equity

Refinancing can be a tool for recouping equity that you already built in your commercial property. It can be a sensible way to free up some working capital that you can use to fund other projects.

  1. Get out of an adjustable-rate mortgage

Are you worried that interest rates might go higher in a few years and that your current adjustable-rate mortgage will become too expensive to handle? Refinancing lets you lock in a fixed rate and a longer-term, thereby reducing volatility in your portfolio. Having a fixed-rate loan also makes it easier to do your budget and stay on track because your monthly payments are more predictable.

  1. Avoid balloon payments

If your current commercial property loan involves paying a large balloon payment at the end of the term, you may be able to use refinancing to avoid it altogether.

How do you refinance a commercial property?

Now that you understand the basics of commercial loan refinancing, it’s time to talk about exactly what you need to do to take advantage of this financial arrangement.

The key to successful refinancing is to shop around. Take time to talk to different financial institutions and compare their rates and requirements.

Don’t forget to compare their added fees as well. The best lender is one that can facilitate terms and conditions that are favorable to you.

It’s also important to ask what information and documentation potential lenders require. In general, they will want to see your company’s net operating income to see if you have the ability to service the loan as agreed.

Most lenders (especially traditional banks) will also require you to have been in business for at least two years before they consider your application.

Be prepared to show collateral documentation and a solid business plan that discusses what projects you plan to undertake using refinancing and how you plan to complete those projects.

You may also be required to submit a detailed commercial debt schedule, which shows information about your company’s current debts and how you are paying them off.

This kind of documentation helps lenders assess whether your business makes enough money to comfortably pay off existing obligations.

Some lenders will also want to see your profit and loss statements, capital summary, current rent roll, tax statements, and other related documents.

Before you take the plunge and close a deal with a lender, make sure you understand the terms of the arrangement. It might be a good idea to talk to a commercial mortgage loan expert for advice if you’re unsure about anything.


Business property refinancing is not quick nor easy, but if you do it right, you can lower your monthly payments and rates. The savings may very well be worth the hassle.

Before you approach a financial institution about commercial mortgage loan refinancing, make sure you understand how the process works and how much it will cost. It’s also a good idea to prepare some of the basic documentation you’ll need to proceed.

Do note that several costs are associated with commercial loan refinancing. You have to spend money on inspections and appraisals, loan application fees, legal fees, etc.

You also have to provide the bank or the lender with a long list of financial documentation. If you pursue commercial loan refinancing, think about how much your business will save not just every month but in the long term.

Financial tools and calculators are available online to help you figure out whether this arrangement is a practical option.

Chances are, if your business is in good shape financially, you will be able to reap the rewards of low-interest rates through refinancing.