Navigating Commercial Loan Refinance: Eligibility Requirements Explained

Apr 20, 2024

Refinancing a commercial loan can be a strategic move to lower interest rates, reduce monthly payments, or access equity in your property. However, navigating the eligibility requirements for a commercial loan refinance can be complex. Understanding what lenders look for can help you prepare and increase your chances of approval.

Financial Stability

One of the key factors lenders consider when evaluating a commercial loan refinance application is the financial stability of your business. Lenders will typically review your company's financial statements, including income statements, balance sheets, and cash flow projections. Demonstrating a consistent revenue stream and healthy financial ratios can strengthen your application.

Credit Score

Your personal and business credit scores play a significant role in the refinance approval process. Lenders use these scores to assess your creditworthiness and determine the interest rate you qualify for. A higher credit score can lead to more favorable loan terms, so it's important to review and improve your credit scores before applying for a commercial loan refinance.

commercial loan refinance

Loan-to-Value Ratio

The loan-to-value (LTV) ratio is another crucial factor in commercial loan refinance eligibility. This ratio compares the amount of the loan to the value of the property being financed. Lenders prefer lower LTV ratios, as they indicate less risk for the lender. Providing a current appraisal of your property can help determine the LTV ratio for your refinance application.

Debt-Service Coverage Ratio

The debt-service coverage ratio (DSCR) measures your business's ability to cover its debt obligations. Lenders typically look for a DSCR of 1.25 or higher, indicating that your business generates enough cash flow to comfortably repay the loan. Calculating your DSCR before applying for a commercial loan refinance can help you assess your financial health.

Loan Term and Repayment Plan

When refinancing a commercial loan, lenders will evaluate the proposed loan term and repayment plan. They will assess your ability to make monthly payments based on the new loan terms. Providing a detailed repayment plan that aligns with your business's cash flow can strengthen your refinance application.

commercial property

Business Plan and Projections

Presenting a comprehensive business plan and financial projections can demonstrate to lenders that you have a clear strategy for repaying the loan. Your business plan should outline your industry, target market, competitive analysis, and growth projections. Including detailed financial forecasts can give lenders confidence in your ability to repay the refinanced loan.


Collateral is an asset that you pledge as security for the loan. When refinancing a commercial loan, lenders may require collateral to mitigate their risk. Common forms of collateral for commercial real estate loans include the property being financed and additional assets of the business. Providing a detailed list of collateral can support your refinance application.

Legal and Regulatory Compliance

Ensuring that your business complies with all legal and regulatory requirements is essential for a successful commercial loan refinance. Lenders will conduct due diligence to verify that your business operates in compliance with laws and regulations. Reviewing your legal documents and addressing any compliance issues before applying for a refinance can streamline the approval process.