Most commercial loan refinancing does not start with a rate. It starts with a date. Our business real estate loans fix the rate for up to 10 years, most often five, on a 15 to 25 year amortization, so a large balance reprices or comes due long before the building is paid off. When that date arrives, the owner renews with the current lender, restructures, or moves the loan. Refinancing a commercial property is the same decision made on purpose instead of in the last month. Here is when it makes sense, the math that decides it, what the new lender will ask for, and how long it takes.
Why commercial property owners refinance
Refinancing a commercial loan means replacing the loan on the property with a new one: a new rate, a new amortization, a new maturity, and sometimes a new amount. Owners come to it for a handful of reasons, and it helps to know which one is yours, because each one leads to a different conversation.
The loan is maturing or resetting. This is the most common reason by far. A balloon means the remaining balance has to be paid or replaced on the maturity date. A reset means the rate reprices at whatever the index says that day. Our post on balloon payments and rate resets explains the difference. Either way, the date is in the note, and it is the one term you cannot negotiate after the fact.
The building needs money. A new roof, an addition, a second loading dock, a remodel for a new tenant. Equity built up in the property can fund the work through a larger loan, often at a lower cost than unsecured borrowing.
The structure no longer fits the business. One of the restructurings we have done started with a Minnesota owner who had the building and the business financed together on a single floating rate SBA 7(a) loan. We split it into three pieces: a commercial real estate loan on the industrial building, a term loan for the business, and an operating line of credit. The real estate and term loans moved to fixed rates, each paid down on its own schedule, and the line gave the owner a place to put extra cash against debt without losing access to it.
A partner is leaving, or the debt is scattered. Buying out a co-owner, or pulling several notes on one property into a single payment, are both refinances at heart.
The math that decides a commercial real estate refinance
Two numbers decide nearly every commercial real estate refinance, and both are measured at today's rate, not the one on your current note. The first is debt service coverage: the cash flow available to pay debt divided by a year of loan payments. The second is loan to value: the new loan amount divided by the appraised value of the building. Coverage asks whether the business can carry the payment. Value asks whether the building supports the loan.
Here is an illustrative example. A Glencoe manufacturer bought its building five years ago with a $1,200,000 loan at 4.25 percent on a 20 year amortization, and the loan matures this year. The payment has been $7,431 a month, and the balance due at maturity is $987,774. The business has $160,000 a year of cash flow available for debt service. Rates are examples to show the arithmetic, not quotes.
| Refinancing a $987,774 balance, illustrative rates | Monthly payment | Coverage |
|---|---|---|
| Current loan, 4.25% | $7,431 | 1.79 times |
| New loan at 7.00%, 15 year amortization (the years left on the original schedule) | $8,878 | 1.50 times |
| New loan at 7.00%, new 20 year amortization | $7,658 | 1.74 times |
The rate went up nearly three points and the payment barely moved, because the balance was paid down for five years and the new loan starts a fresh amortization. That is the part of a maturity that surprises owners in a good way. The trade is time: a new 20 year schedule means the building is paid off five years later than the original plan, and every structure choice is a version of that trade between payment and payoff date. Our post on how much a business can borrow using DSCR walks through the coverage arithmetic in full, and our post on how interest rates affect business loans covers where the new rate comes from.
Value is the second test. If the building appraises at an illustrative $1,450,000, the $987,774 balance is 68 percent of value, which leaves room. Cash out is where value starts to bind. At an illustrative advance of 75 percent, $1,450,000 supports a loan of $1,087,500, about $100,000 more than the balance, with a payment of $8,431 a month at the same 7.00 percent and 20 years, and coverage of 1.58 times. The cash flow could carry more than that. The building sets the limit, which is why a fresh appraisal matters more on a cash out refinance than on any other kind.
When refinancing a commercial loan is not worth it
A refinance has to beat staying put, and sometimes it does not.
Prepayment terms eat the savings. Many fixed rate commercial loans carry a prepayment charge during the fixed period, sometimes a percentage that steps down each year and sometimes a formula tied to rates. Read the note before you talk to anyone. If the charge ends in eight months, the answer may be to wait eight months.
Your current rate is below today's market with years left to run. A fixed rate written in a low rate year is an asset. Giving it up early to lower a payment usually costs more over the life of the loan, and the longer amortization that lowers the payment is doing the work, not the refinance.
The value has not held. If the appraisal comes in below what you expect, the new loan may be smaller than the balance, and the difference comes out of pocket. Better to learn that from a conversation than from an appraisal you have already paid for.
The loan is nearly paid off. Closing costs on a small remaining balance can take longer to recover than the loan has left.
Maturity date in the next year? Bring the note, the last two years of financial statements and a sense of what the building is worth. A lender can run both tests with you before anyone orders an appraisal. TALK WITH A BUSINESS LENDER
What the new lender needs to refinance a commercial property
A refinance is underwritten like a new loan, because it is one. The package depends on whether your business occupies the building or you lease it to others. An owner-occupied building is judged on the operating cash flow of the business inside it. An investment property is judged on the rent it produces, alongside your own financial position.
- The current loan. The note, the payoff amount, the maturity or reset date, and the prepayment terms.
- Business financials, for an owner-occupied building. Recent years of business tax returns and year to date statements.
- Property financials, for an investment property. The rent roll, the leases, and operating statements showing income and expenses.
- The guarantors. Personal financial statements and tax returns for the owners who will guarantee the loan.
- The property. Insurance, property taxes, any environmental reports already on file, and a list of major repairs or improvements since you bought it.
Our commercial loan application checklist has the full list, and our guide on how to get a business loan in Minnesota explains how a lender reads it. If the property is a rental or a portfolio of them, our guide to investment real estate financing covers the rent roll and coverage detail.
The cost and timeline of refinancing a commercial property
The costs sit in two places. On the new loan, expect a third party appraisal, an environmental review where the property or its history calls for one, title work, recording, legal documentation and any loan fees. On the old loan, there may be a prepayment charge. Ask for all of it in writing before you commit, and put the total next to what the refinance saves or makes possible.
On timing, a complete application moves faster than anything else you can control. Our business loan decisions generally take two to three weeks from a complete application, and a real estate loan closing generally takes three to six weeks, with the appraisal often the longest single step. Add the time it takes to gather the package and a buffer for questions, and the practical answer is to start 90 days before the maturity date, not the month it comes due. Starting early also keeps the choice yours: renew, restructure or move, with time to compare them.
Refinancing the building versus refinancing other business debt
This guide is about the loan on a building. Equipment notes, term loans, lines of credit and moving an SBA loan to conventional financing follow different math, because the collateral wears out or turns over and there is no appraisal deciding the ceiling. Our post on when to refinance a business loan covers that side. When the building and the business are financed together, as in the SBA example above, the refinance is usually the moment to separate them. If the building is owner occupied and the down payment is the obstacle, our post on which SBA program fits which purchase explains where 504 financing fits.
Who you refinance with matters
A maturity is usually the one point when a commercial borrower can choose a lender without paying to leave. Use it. Ask who will read the deal, who walks the building, and where the decision is made. At Security Bank, your lender walks the property and takes it to our loan committee here in Minnesota, and our senior lenders cover McLeod County, Carver County and the Twin Cities metro. You can meet them on our team page, and our commercial real estate loans page lays out how we structure owner-occupied and investment property. I would rather tell an owner early that staying put is the better answer than find a reason to move a loan that is working.
Questions owners ask about commercial loan refinancing
What is commercial loan refinancing?
Commercial loan refinancing replaces an existing loan on a business property with a new loan, usually with a new rate, amortization and maturity, and sometimes a different amount. Owners most often refinance when a loan matures or its rate resets, to fund improvements from the equity in the building, or to restructure debt that no longer fits the business.
How long does it take to refinance a commercial property?
From a complete application, a commercial real estate loan generally closes in three to six weeks, and the appraisal is often the longest single step. Gathering the financial package takes time too, so starting about 90 days before the maturity or reset date leaves room to compare options.
What do lenders look at to refinance a commercial real estate loan?
Mainly two things, both at today's rate: debt service coverage, which is the cash flow available to pay debt divided by a year of loan payments, and loan to value, which is the new loan amount divided by the appraised value. An owner-occupied building is judged on the cash flow of the business that operates in it; an investment property is judged on the rent it produces, alongside the owners' own financial position.
Can I take cash out when I refinance a commercial property?
Often, if the building's value supports it. The appraisal sets how large the new loan can be, so equity built through years of payments and any rise in value can fund improvements or other business needs. The cash flow still has to cover the larger payment, and a cash out refinance leaves less equity in the property.
Should I renew with my current lender or refinance somewhere else?
Compare them on structure, not just rate: the amortization, the fixed period, the prepayment terms, and who makes the decision. A maturity is the one point when moving a loan usually carries no prepayment charge, so it is the natural time to get a second look. Moving costs an appraisal and closing costs, which is worth weighing against what the new structure offers.
The next step
Pull the note on your building and write down three things: the maturity or reset date, the prepayment terms, and the balance on that date. Put the date on the calendar 90 days ahead. If you are already inside that window, or you have a project the building could fund, that is the conversation to have now, while every option is still open. If your loan is at another bank, we are glad to give it a second look.
Know your maturity date before it decides for you. Bring the note. We will run the coverage and the value with you and lay out the structures. TALK WITH A BUSINESS LENDER
Keep reading: balloon payments and rate resets, and small business loans at Security Bank & Trust Co.
Growing, together.
Loan rates, cash flow, property values, coverage ratios, advance rates, payments and loan amounts are illustrative examples calculated for this post, not quotes or offers. Timelines are general and depend on the property, the appraisal and a complete application. Actual terms depend on the borrower, the collateral and the structure, and every loan is subject to credit approval. Nothing here is tax, legal or investment advice. Page last reviewed September 2026.
