Refinancing a commercial property can help a business improve its cash position, release equity or move to a mortgage that better suits its plans. Before applying, it is worth understanding what lenders will assess, how long the process may take and whether the benefits outweigh the costs.
Key takeaways:
- Refinancing involves replacing an existing commercial property loan with a new facility, either with the same lender or a different one.
- A lender will consider the property’s value, the amount you want to borrow and your ability to meet repayments.
- A lower monthly payment does not always mean a lower overall cost. Fees, early repayment charges and the length of the new loan should all be considered.
What Does Refinancing a Commercial Property Involve?
When you refinance, a new loan replaces the finance currently secured against your commercial property. Businesses may do this to seek more suitable terms, release equity for investment or restructure existing borrowing. Unlike a property purchase, the business already owns the property and is reviewing how it is financed.
Why Might a Business Refinance?
The right reason will depend on what the business wants to achieve. For some, the priority is managing monthly repayments. Others may want to access equity built up in the property to support growth, improve premises or strengthen cash flow. Refinancing can also be an opportunity to review whether the current lender and loan structure still fit the business.
What Will a Lender Look At?
Lenders will assess both the property and the business. This may include the property’s valuation, the proposed loan-to-value ratio (LTV), trading performance and whether income can comfortably support repayments. Requirements vary between lenders and property types, so understanding your position before applying can help you approach suitable lenders.
How Long Does Commercial Property Refinancing Take?
Timescales vary from case to case. An application may involve a property valuation, lender assessment and legal work, each of which can affect the completion date. Having financial information and property documents ready early can help avoid unnecessary delays, although some stages will depend on the lender and other parties involved.
Is There a Difference Between Remortgaging and Refinancing?
The terms are often used interchangeably when discussing commercial property. A commercial remortgage is a type of refinancing: it involves replacing a mortgage secured against the property. Refinancing can also describe a wider review or restructuring of a business’s borrowing.
How Do Commercial Refinance Rates Work in the UK?
Commercial property finance may be offered on a fixed or variable rate. A fixed rate provides certainty about the interest rate for an agreed period, while a variable rate can change over time. The rate available to a business will depend on the lender’s assessment, the property, the amount borrowed and market conditions. Variable rates do not all move in precisely the same way as the Bank of England’s Bank Rate, so it is important to check the terms of the specific facility.
Is Refinancing the Right Move?
Before proceeding, compare the full cost of a new facility with the benefits it could provide. This includes checking any early repayment charges on your existing loan, fees for the new finance and the total amount payable over its term. The best option is the one that supports your business’s plans and remains affordable, rather than simply offering the lowest headline rate.
Thinking About Refinancing Your Commercial Property?
Whether you want to release equity, review your current mortgage or explore more suitable terms, the BFS team can help you understand your options. Get in touch for a conversation about your property, your existing finance and what you would like to achieve.
