How to Refinance Commercial Real Estate
Commercial real estate refinancing follows the same basic logic as residential refinancing: you replace an existing loan with a new one, usually to achieve better terms, lower payments, or access equity built up in the property. But the process is more complex, and the options are different depending on your property type and situation.
Common Reasons to Refinance
- Your existing loan is maturing and needs to be replaced
- Interest rates have dropped and you want a lower rate
- You want to pull cash out of appreciated equity
- You want to consolidate multiple loans or debts
- You're moving from a bridge or hard money loan to permanent financing
- Your original loan had unfavorable terms and the property has stabilized
Types of CRE Refinancing
Rate and term refinance: Replaces your existing loan with a new one at a better rate or longer term, without pulling cash out. Straightforward and typically the easiest to qualify for.
Cash-out refinance: Pulls equity out of the property while replacing the existing loan. Lenders typically limit cash-out to 65 to 75% LTV depending on property type.
SBA refinance: The SBA 7(a) can refinance existing commercial debt, including conventional loans, hard money, and business debt, under certain conditions.
What Lenders Look For
- Current property value (recent appraisal)
- Existing loan balance and payoff amount
- Current and historical NOI or business cash flow
- DSCR at the new loan amount
- Borrower credit and financial strength
- Lease terms and tenant stability (for investment properties)
Timing Your Refinance
The best time to refinance is when property values are strong, your financials are clean, and you have time before your existing loan matures. Refinancing under pressure, with a maturing loan and no time to shop, puts you in a weak negotiating position. If your loan matures within 12 months, start the process now.
SBA Refinancing: A Special Case
The SBA 7(a) can be used to refinance existing commercial debt, including conventional loans, equipment loans, and business debt, if certain conditions are met. The benefit is access to longer terms (up to 25 years for real estate), which can significantly reduce monthly payments even without a rate improvement. For owner-occupied properties carrying short-term or high-rate debt, this can be a powerful restructuring tool.
Educational content only, not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not, and must not be construed as, financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.