Refinancing Commercial Loans: Five Best Practice Tips from the Experts

Many small business owners are refinancing their commercial loans, or at least considering doing so. Refinancing can make it possible for a business owner to avoid large balloon payments on bank loans, or help their company’s bottom line by providing better conditions. For example, switching from a variable rate loan to one with a fixed rate allows for easier budgeting by making payments for the rest of the life of the loan predictable.

Refinancing may seem like an intimidating process – but it can be simple and well worth the effort! To assist you as you move forward, here are some expert tips on best practices when refinancing commercial loans.

Five Tips for Refinancing Your Commercial Loan

  1. Time your refinancing right: Timing is important for your refinancing strategy. If you have a balloon payment coming up, be sure to start the process far enough in advance to avoid it. If you want to switch from a variable-rate loan to one with a fixed rate, refinance your current loan when rates are rising, and preferably when they have just begun to rise. By locking in a rate while they are falling, you will not get the best possible conditions.
  2. Know what to expect: Have your property independently appraised so that you know exactly what you are working with. If your property has depreciated, you may have to provide additional collateral when you refinance. Another appraisal will be done in the course of the lending process.
  3. Understand your needs and limits: Armed with the knowledge of what is available on the market, set a range of monthly payments and interest rates that match your goals and financial capabilities. Certain refinance loans will allow you to receive cash back. If this is something your business needs or wants, figure out how much you need to serve your purposes.
  4. Do the math carefully: Once you have a new loan with different conditions, you will live with it for a long time, so make sure you have done the math! This is not something you have to do on your own–get help from a CDC or an accountant to figure out what to expect in terms of fees and charges.
  5. Be a smart borrower: Examine all of your options before you choose one. Lenders have different standards and programs, so if you don’t qualify with one lender or don’t like their terms, it’s worth it to consult another! The extra effort could be well worth it. You don’t want to end up with a loan you’ll want to refinance again later.

Refinancing With an SBA 504 Loan

As you are “shopping hard” and considering your refinancing options, be sure to consider the Small Business Administration (SBA) 504 loan. The 504 loan program provides refinance loans at below-market rates if the loan being refinanced is

  • in its last round of financing
  • is at least two years old, and
  • at least 85% of your commercial loan was used for eligible purposes.

Those purposes are:

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

The eligibility requirements for a 504 refinance loan are the same as those for the standard 504 loan, so the majority of businesses can qualify for the loan if they have purchased a fixed asset like a building with a prior loan.

You can refinance up to 90% of the current value of an eligible property, or 85% if business expenses are being refinanced at the same time. Up to 20% of the value of the property can be cashed out, and you can use that money for business expenses such as operating costs, wages and inventory.

A nonprofit Certified Development Company (CDC) such as TMC Financing facilitates the SBA loan, which are granted in conjunction with a conventional lender that provides 50% or more of the total. You and that lender determine the amount and conditions of that loan, which becomes your new first mortgage. Your CDC facilitates the SBA loan for up to 40%, or $5 million, at a fixed, below-market rate. This becomes your new second mortgage. The 10% injection is covered by your property and doesn’t require any additional cash down.

Refinancing with a 504 loan can be the right option for many borrowers. With that knowledge in your back pocket and armed with your five expert tips, you’re ready to enter the world of commercial loan refinancing!

You can find out more about the 504 loan and refinancing your conventional 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