The Comprehensive Guide to Commercial Loan Refinance Programs

There are many reasons to consider refinancing a previous commercial loan. You might have a balloon payment coming up, you might be hoping to take advantage of the current low commercial real estate interest rates, or you may need to free up some trapped equity for business expenses. Depending on when you secured your first loan, you could save a considerable amount of money through refinancing.

In order to make the most of the refinancing opportunity, you should shop around for the best deal possible. This comprehensive guide to commercial loan refinance programs is a perfect first step in your refinancing investigation.

Where Can You Secure Commercial Loan Refinancing?

It is important to realize that you do not have to refinance your loan with the same organization that you secured the loan with originally, even if they would like you to think so. Here are some other types of institutions you can look to for refinancing options.

Banks. Whether you are securing a loan or refinancing, commercial banks are generally the most selective conventional lenders with the best offers. Variables such as creditworthiness, age of the business, revenue and loan size can affect the loan rate. Banks may offer comparatively high loan-to-value (LTV), which is the percentage of the total value of the mortgaged property. A higher LTV rate means a lower down payment. Refinance loans from banks often have balloon payments.

Loan brokers. Brokers compare offers from banks and non-bank sources. These other sources may include finance companies or institutions such as pension funds and life insurance companies. They may offer faster decisions and funding than banks, but their conditions are generally somewhat worse than you might find at a bank by yourself.

Online lenders. These lenders usually have more lenient lending standards but less attractive conditions. Online lenders often funded by investors, for whom they are required to produce a certain level of returns, driving up the price of credit for the borrower.

Hard money lenders. These lenders base their decisions exclusively on the value of the borrower’s property, without taking the personal creditworthiness of the borrower into account. This type of loan is often used as a “bridge loan,” or a stopgap between disbursements of funding from other sources. Otherwise, it is a loan of last resort, as its conditions are the least favorable to the borrower, with high interest and low LTV. If a hard money loan has to be used to refinance a commercial real estate loan (by a borrower facing a balloon payment who is unable to secure a loan elsewhere, for example), it can be assumed that the borrower will continue to search for financing. The term of a hard money loan is always very short, since it is intended as a short-term solution, and the cost of the loan is too high to maintain over an extended period.

The SBA 504 Refinance Loan. The 504 loan provides refinancing with low interest and high LTV in comparison with competing offers and doesn’t have balloon payments. Certified Development Companies (CDCs) like TMC Financing recommend this option to borrowers hoping to refinance.

Here are typical conditions for refinance loans from these sources, as of January 2018:

Rate LTV Term Amortization
Bank 5%  >80% >10 years >15 years
Broker 6-11% >75% >15 years >30 years
Online lender 8-12% >80% >30 years >30 years
Hard money 9-14% >55% >3 years >3 years
SBA 504 4.63% >90% 10/20 years 10/20 years

Refinancing Commercial Real Estate With the 504 Loan

You can use a 504 loan for refinancing if at least 85% of the original loan was used for eligible purposes, which are:

  • purchase land or buildings
  • construct buildings
  • purchase equipment with a service life of ten years or more
  • improve, upgrade or renovate buildings

A 504 loan always has three parts, and is facilitated by a nonprofit CDC:

  • a loan from a conventional lender for at least 50% of the total amount. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage.
  • a separate SBA loan of 40% of the total, up to $5.5 million, at a fixed, below-market rate. This will be your second mortgage.
  • the borrower contributes at least 10% equity to the loan as down payment. Usually the equity in the property being refinanced covers this requirement.

The loan being refinanced, or its last round of financing, must be at least two years old, and it cannot have a government guarantee already (like SBA or USDA loans). You can refinance up to 90% of the current value of an eligible property, or 85% if eligible business expenses are being refinanced at the same time. You can get up to 20% of the value of the property in cash, which you can use for business expenses such as operating costs, wages and inventory.

You can find out more about the 504 loan and refinance your commercial real estate loan from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison