Refinancing your commercial property means replacing your existing loan with a new one, typically to reduce costs or access the equity you've built up over time.
For business owners in Berwick and Harkaway, this becomes particularly relevant when your current loan no longer reflects the value you've created in your property or the opportunities available through improved lending terms. The decision to refinance often stems from one of three scenarios: your existing rate sits well above what's currently available, your property has increased in value and you need to access that equity for expansion, or your business cashflow has changed and you need different loan terms to match.
Commercial Interest Rates and When They Justify a Move
A difference of 0.5% to 1% on a commercial property loan becomes significant when the loan amount reaches several hundred thousand dollars or more. Consider a business holding a $600,000 commercial mortgage on an office warehouse in Berwick's industrial precinct. If that loan carries a rate 0.8% higher than what's available through a commercial property refinance, the business pays roughly $4,800 more each year in interest alone. Over a five-year period, that figure approaches $24,000.
The calculation becomes more involved when you factor in any commercial property rates offered as part of a refinance structure. Some lenders provide rate discounts for businesses with strong cashflow or those purchasing owner occupied commercial property. Others differentiate between strata commercial properties and standalone buildings, with different LVR requirements for each.
Business owners sometimes delay refinancing because they're concerned about commercial stamp duty or valuation costs, but in most refinance scenarios where you're not borrowing additional funds, stamp duty doesn't apply. The commercial property valuation typically costs between $1,500 and $3,500 depending on the property type and complexity.
Accessing Equity from Commercial Property Investment
Commercial equity works differently to residential. Lenders assess the value based on rental income, commercial lease terms, and the commercial tenant's covenant strength, not just comparable sales.
In our experience, businesses that purchased property in Harkaway five to seven years ago often sit on substantial equity they haven't accessed. A business that bought a small warehouse for $450,000 and now holds a property valued at $650,000 with a loan balance of $320,000 has roughly $330,000 in equity. Depending on the lender's commercial LVR policy and the strength of the commercial lease, that business might access $150,000 to $200,000 to fund expansion, purchase equipment, or acquire a second property.
The application process requires current financials showing business cashflow, details of the commercial rental income if the property is leased to another business, and confirmation of commercial zoning and permitted use. For owner occupied commercial property, lenders focus more heavily on your business financials than on rental income, which can work in your favour if your business generates strong revenue.
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Fixed Interest Rate Versus Variable for Commercial Refinance
Most commercial property finance structures allow you to split your loan between fixed and variable portions. This approach suits businesses that want certainty over a portion of their repayments while maintaining access to redraw facilities on the variable component.
A fixed interest rate on commercial property typically locks in for one to five years. During that period, your repayments remain unchanged regardless of rate movements, but you'll face break costs if you need to exit early. The variable interest rate portion allows additional repayments and redraw access, which matters when business cashflow fluctuates seasonally or you receive irregular large payments.
When refinancing, the loan structure you choose should reflect your business plans. A business preparing to expand within two years might prefer full variable terms to maintain flexibility. A business with stable cashflow and no immediate need for additional capital often benefits from fixing a larger portion to create budgeting certainty.
Commercial Vacancy Risk and Loan Serviceability
Lenders assess commercial property differently when there's a commercial vacancy or when a lease is due to expire within twelve months. If you're refinancing and your current tenant is on a month-to-month lease, or if the property sits vacant, expect lenders to reduce the amount they're willing to lend or increase the rate to account for the risk.
Berwick's commercial property market, particularly around the Princes Highway and nearby business parks, maintains relatively low vacancy rates for well-maintained office warehouse space. Properties suited to light industrial use, trades, or logistics tend to lease more readily than highly specialised fit-outs. When refinancing, having a lease with two or more years remaining and a tenant with a solid payment history strengthens your application considerably.
If your property is vacant and you're refinancing, lenders typically assess the loan amount based on your business's ability to service the debt from other income sources, rather than relying on commercial rental income. This reduces the loan to value ratio they'll offer, often capping it at 60% to 65% rather than the 70% to 80% available for tenanted property.
Loan Terms and Repayment Flexibility in Commercial Finance
Commercial loan terms don't follow the standard 30-year residential model. Most commercial property loans are structured with a loan term of 15 to 25 years, with interest-only periods available for the first five years in many cases.
Flexible repayment options matter when business revenue varies month to month. Some commercial loans allow you to make principal and interest repayments during strong trading periods and switch to interest-only during quieter months, provided you've arranged this structure at the outset. Others permit additional repayments on the variable portion without penalty, letting you reduce the loan amount when cashflow allows.
Consider a business owner refinancing a commercial property purchase made several years ago. If the original loan was set up with a 20-year term and seven years have passed, the remaining term is now 13 years. Refinancing lets you reset to a longer term if you want to reduce monthly repayments, or maintain the shorter term if you're focused on building equity faster. The decision depends on whether you prioritise cashflow now or own the business premises outright sooner.
How the Commercial Application Process Differs from Residential
A commercial application requires business financials going back two years, including profit and loss statements and balance sheets. If you're refinancing an investment property leased to a commercial tenant, you'll need the lease agreement, details of rent reviews, and evidence of the tenant's payment history.
Lenders also assess the commercial property business use and verify that the property's commercial zoning permits that use. A property approved for office use won't meet the lender's requirements if you're operating a manufacturing business from it without the appropriate commercial DA. This rarely becomes an issue during a refinance if the business use hasn't changed, but it does require confirmation.
For Harkaway properties, particularly those on larger rural-zoned blocks with secondary commercial use approval, lenders examine the specifics more closely. The combination of rural and commercial elements can affect the valuation method and the lender's willingness to offer standard commercial terms. Working with a mortgage broker in Harkaway familiar with these nuances helps you position the application correctly from the outset.
Commercial GST also factors into the refinance if the property is registered for GST purposes or if the sale involved a going concern. Most refinances don't trigger GST, but it's worth confirming with your accountant before proceeding, particularly if you're drawing out equity at the same time.
When Refinancing Helps You Build a Commercial Portfolio
Some business owners refinance their first commercial property to access equity and use it as a commercial deposit on a second property. This strategy works when the first property has increased in value and generates reliable commercial rental income or supports a business with strong cashflow.
As an example, a business in Berwick owns a small office unit purchased for $400,000, now valued at $550,000 with a remaining loan of $250,000. Refinancing at 70% LVR would allow a loan amount of $385,000, releasing $135,000 after paying out the existing loan. That amount could serve as a deposit on a second commercial property valued at $500,000 to $600,000, assuming the business cashflow supports servicing both loans.
Lenders assess the combined serviceability across all commercial property holdings, so your business needs sufficient revenue or rental income to cover repayments on both properties. If you're planning to build a commercial portfolio, demonstrating consistent cashflow and maintaining strong commercial lease agreements on tenanted properties becomes essential.
Commercial Settlement Timeframes When Refinancing
Commercial settlement typically takes four to six weeks from application approval, assuming the valuation and legal work proceed without delays. If you're refinancing with your existing lender, the process can be shorter because they already hold the security and much of the documentation.
When switching lenders, the new lender orders a commercial property valuation and conducts their own assessment of your business financials and the property's income. Once approved, your solicitor prepares the discharge documents for the old loan and the mortgage documents for the new one. Both lenders coordinate the commercial settlement date to ensure the old loan is paid out on the same day the new loan settles.
If you're refinancing to access equity for a specific purpose such as purchasing equipment or funding a fitout, timing matters. Discuss your timeline with the broker at the start so the application progresses in line with your business needs.
If you're considering a commercial property refinance in Berwick or Harkaway and want to understand how current rates, loan structures, and equity release options apply to your property, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
When does refinancing a commercial property make financial sense?
Refinancing makes sense when your current rate sits 0.5% or more above available rates, when you need to access equity for business expansion, or when your loan structure no longer matches your cashflow needs. A rate difference of 0.8% on a $600,000 loan costs roughly $4,800 per year in additional interest.
How much equity can I access when refinancing commercial property?
The amount depends on your property's current value, the lender's LVR policy, and the strength of your commercial lease or business cashflow. Most lenders offer 70% to 80% LVR for tenanted property with strong lease terms, though this reduces to 60% to 65% for vacant properties or those with short-term leases.
Do I pay stamp duty when refinancing my commercial property?
Stamp duty typically doesn't apply when refinancing your existing commercial property without increasing the loan amount. You will need to pay for a commercial property valuation, which usually costs between $1,500 and $3,500 depending on the property type.
How do lenders assess serviceability for commercial property refinance?
Lenders assess your business financials, commercial rental income if the property is leased, and the strength of the commercial tenant's covenant. For owner occupied commercial property, they focus on your business cashflow rather than rental income, requiring two years of financials and profit and loss statements.
Can I fix part of my commercial loan and keep part variable?
Yes, most commercial property finance structures allow you to split your loan between fixed and variable portions. This provides certainty on a portion of repayments while maintaining flexibility and redraw access on the variable component for managing fluctuating business cashflow.
