Commercial property refinance: moving, restructuring or raising capital

• A fixed period or facility term is ending, and the existing lender's renewal terms are worse than the market, or the facility is simply due for repayment.
• Exiting a bridging loan after buying at auction, carrying out works or letting a vacant building, so the property can move onto long-term debt.
• Raising capital from equity that has built up through repayments or rising value, to fund an acquisition, a fit-out, new equipment or another property.
• Consolidating borrowing spread across several lenders or products into one facility secured on the property.
• A lender relationship under strain, such as a covenant breach, a bank reducing its exposure to a sector, or annual reviews adding new conditions.
• Changing the shape of the debt, for example a longer term, a period of interest-only while the business invests, or the release of a personal guarantee given years ago.
• An ownership change, such as buying out a co-owner or partner, where the property has to carry new borrowing.

A lower headline cost from a new lender can disappear once exit costs are added. Before looking for new terms, ask the current lender for a redemption statement and read the facility letter for:

• Early repayment charges, often set as a percentage of the balance that reduces each year of a fixed period.
• Fixed-rate or swap break costs. Many bank facilities for larger commercial loans were fixed through an interest rate swap or an embedded fixed rate. If market rates have fallen since it was set, breaking it can cost a significant sum; if they have risen, there may be no cost or even a gain. Only the lender can give the figure, and it changes daily.
• Exit fees, common on bridging and some specialist loans.
• The lender's own legal fees for releasing its charge. For companies and LLPs, the satisfied charge is then recorded at Companies House, the process for which is set out on GOV.UK's page on registering a statement of satisfaction.

Then add the new lender's arrangement fee, valuation fee and legal costs, which the borrower usually pays for both sides. Stamp Duty Land Tax is not normally payable on a straight refinance, because ownership of the property does not change; moving the building into a different company or pension is a transfer, not a refinance, and is covered in our guide to buying premises through an SPV or pension.

Illustration only, with round hypothetical figures. A company owes £400,000 on its warehouse. Moving to a new lender would save a meaningful amount of interest each year, but the current facility carries a £12,000 early repayment charge and the new lender's fees, valuation and legal costs come to another £10,000. The move only makes sense if the annual saving recovers £22,000 well within the new term, or if the refinance achieves something the current lender will not agree to, such as releasing capital or a guarantee.

Owners usually qualify for a commercial property refinance when the building values well on a fresh survey, the business profit or rent comfortably covers the new repayments, the title is clean and the current loan has been run properly. A new lender checks each of these:

• A fresh valuation. The new lender instructs its own surveyor, and the figure may differ from the price you paid or the last valuation. Some property types, including secondary offices and larger retail units, have fallen in value in recent years, which can leave less room for borrowing than an owner expects. Ask what the valuer is likely to report before paying fees.
• Income cover. For owner-occupied property the lender reads your accounts and management figures to check that profit comfortably covers the new repayments, alongside other debts. For let property it tests the rent against the interest and looks at the tenants' strength, the unexpired lease terms, break clauses and rent reviews. A building with a major tenant approaching a lease expiry or break is hard to refinance until that is resolved.
• Energy performance. Let commercial property must meet the minimum energy efficiency standard for non-domestic property. A poor EPC can limit which lenders will refinance a let building, and some will lend only if improvement works are planned.
• Title and legal matters. A refinance brings the title back under scrutiny, and issues that passed a previous lender can surface: missing rights of way, unregistered land, undocumented extensions or leases that were never formally completed. Checking the title register early lets your solicitor start on any gaps. In one £212,300 debt consolidation we arranged, the credit was approved but the lender's requirement for precise evidence of property ownership and title from the client's solicitor became the blocker at completion, and had to be worked through before funds were released.
• Your conduct on the current loan. Lenders ask for statements from the existing lender. Payments missed or a covenant breached are not automatically fatal, but they should be explained at the outset.

A commercial property refinance typically takes six to twelve weeks from application to completion, and larger or more complex cases can take longer. The valuation is usually the first milestone, and it can slip if the valuer needs leases, a tenancy schedule or an EPC that are not to hand. Legal work follows: the new lender's solicitor reviews title and leases, and the existing lender has to provide redemption figures and release its charge. Title defects, unregistered land, a building held across several owners, or a fixed rate or swap that must be broken on a particular date can each add weeks. Starting three to four months before a fixed period or bridge ends leaves time to deal with problems without paying extension fees or default interest.

A bridge is priced for months, not years, so the refinance is the plan, not an afterthought. Start the term application well before the bridge ends, because valuation and legal work take time and a bridge that overruns can attract extension fees or default interest. The term lender will value the property as it now is, so have evidence ready: completion certificates and building control sign-off for works, signed leases for new lettings, and a period of trading if you now occupy the building. Our pages on bridging loans and refurbishment bridging cover the first stage.

An existing lender avoids new valuation and legal costs, and many will offer renewal terms without full re-underwriting if the loan has run well. Getting market terms first gives you something concrete to negotiate with. Where the relationship is sound and the difference is small, renewing is often the sensible outcome, and we will say so.

Refinancing the whole facility is not the only way to change terms or raise money. Renewing with the current lender, covered above, avoids new valuation and legal costs. If the aim is extra capital, a second-charge secured business loan can leave a good existing mortgage untouched, while asset refinancing raises money against owned equipment instead of the building. If the pressure is working capital rather than property debt, invoice finance or a revolving credit facility may fit better than adding to a long-term mortgage. Selling a surplus property, or a sale and leaseback of the premises, are further options to discuss with your accountant and solicitor, though they are not finance we arrange.

Extending the term lowers the monthly payment but increases the total interest paid. Releasing equity to cover trading losses puts the building at risk without fixing the underlying problem; a restructure of the business's costs, or debt consolidation planned around a clear recovery, may be a better starting point. Most commercial lenders take personal guarantees from directors, and many use all-monies charges that secure every debt owed to that lender, not just the mortgage, as explained in our guide to debentures and charges. Moving from a fixed to a variable rate exposes the business to future rate changes.