How to Refinance a Commercial Property Loan in Australia

Commercial property refinance only adds value when at least one of four conditions has materially changed since the original loan was written. The four conditions are: market pricing (the loan margin has moved meaningfully against the borrower), property income (rental income has increased or stabilised), borrower position (sponsor financials, structure or risk profile has changed) and product fit (the original product is no longer the right product for the asset). When none of these has changed, refinance generally costs more than it saves; when one or more has changed materially, refinance is often one of the highest-return decisions available to a commercial property owner.

Market pricing has moved

Commercial loan margins in Australia move meaningfully through the cycle. A facility written in 2022 at a 3% margin over BBSY may be priceable today at 2.25% — a 75 bps saving that on a $5m loan is $37,500 per annum. Major banks rarely volunteer pricing reviews to existing customers; competitive tension created by a credible refinance enquiry is usually what triggers the existing lender to meet market.

Property income has changed

The most common refinance trigger we see. A property bought vacant or part-leased on an asset-lend or stretch-senior basis at 60% LVR matures into a fully-leased, income-producing asset within 12–24 months. The same property, with a 4-year WALE on a national tenant, often qualifies for major-bank lease doc senior at 65–70% LVR and 200+ bps tighter pricing. Refinancing at the moment the income stabilises is one of the highest-return decisions in commercial property.

Borrower position has changed

Strengthening sponsor financials, a cleaner corporate structure, the resolution of historical legal or credit issues, or the addition of a stronger guarantor can each shift the deal from non-bank into bank territory. Conversely, weakening financials, additional debt exposure or a covenant breach on a related facility may force a refinance out of the bank lane into specialist non-bank.

Product fit has changed

The most under-recognised trigger. A loan written as a 5-year interest-only facility entering its final 12 months without an automatic extension; a low doc loan now economically refinanceable to full doc; a development-stabilisation facility that should have been refinanced to long-term investment debt 6 months ago. These transitions rarely happen on their own — they require active reassessment of the product against the asset's current state.

In practical terms, six events drive almost all the commercial refinance enquiries we see. Recognising the trigger is the first step in deciding how to approach the market.

1. Interest-only period expiring (typically end of year 3 or year 5) — forcing the loan to either revert to P&I, extend IO, or refinance
2. Loan maturity date approaching — most commercial loans are 3-year, 5-year or 7-year terms with bullet maturity, not 25-year amortising self-liquidating loans
3. Tenant has signed a new long lease or major tenant has renewed — materially uplifting the asset value and lender appetite
4. Construction or refurbishment completion — the project is stabilised and ready to transition from build-phase debt to investment debt
5. Existing lender has communicated rate increase or covenant change — credible refinance tender is the only competitive response
6. Sponsor needs to extract equity (cash-out) for the next acquisition or capital project

A refinance is not a renewal — it is a fresh credit assessment under current lender policy and current market conditions. The fundamentals the new lender will examine are the same as on an acquisition: security, income, sponsor, structure. The crucial difference is that there is now actual operating history on the asset, which can work strongly for or against the borrower.

Security

A fresh independent valuation will be commissioned. Where market values have appreciated since acquisition, the borrower benefits twice — through higher absolute borrowing capacity and through a lower LVR on the existing loan amount. Where market values have softened or vacancy has dragged income, the valuation can drive the deal to a tighter LVR than the existing facility, which then forces either a sponsor cash injection at refinance or a stretch-senior product to fill the gap.

Income

On commercial property refinance, the lender will assess income on demonstrated rather than forecast cashflow. Two years of rent receipts, current lease(s), tenant payment history and lease arrears records all become part of the file. A long-WALE asset with no arrears is the cleanest possible income profile; a short-WALE asset with intermittent arrears materially constrains lender appetite even if headline income looks adequate.

Sponsor

Fresh financials, fresh tax returns, fresh ATO portals and fresh disclosure of all current commercial exposures. Lenders now have the benefit of seeing how the sponsor has managed the existing facility — clean payment history is a strong positive; any covenant trips, late payments or breaches of conditions are a strong negative.

Refinances are either 'straight' (same loan balance, different lender or different terms) or 'cash-out' (increased loan balance, with the additional proceeds flowing to the sponsor). Cash-out is a fundamentally different credit conversation. Lenders treat additional debt against an existing asset as a fresh credit advance and apply current policy LVR and serviceability tests to the new total facility.

The two most common legitimate uses of commercial cash-out are: equity release to fund another commercial property acquisition (extracting equity from Property A to deposit on Property B), and capital release to fund refurbishment or value-add capex on the same asset. Both are acceptable to most lenders provided the use of funds is for genuine commercial purpose and the resulting facility passes serviceability on current income.

One of the highest-leverage refinance moves in Australian commercial property is moving across lender categories — from bank to non-bank, from non-bank to bank, or in either direction relative to private credit. Each direction has its own logic and its own moment.

Non-bank to bank (the income-stabilisation refinance)

The most common direction, and almost always the highest-value. A property purchased on non-bank at 9.5% to fill a vacancy or repositioning thesis, refinanced to bank lease doc at 7.0% the moment income stabilises, compresses pricing by 250 bps and typically expands LVR by 5–10%. On a $4m facility, that is $100k+ of annual interest saving plus $200–400k of additional debt capacity that can be deployed elsewhere. The timing is critical — most non-bank facilities have an explicit window (often 12–24 months) at which extension pricing steps up materially.

Bank to non-bank (the policy-overlay refinance)

Less common but sometimes necessary. A bank's policy on a specific asset class can shift (post-COVID office vacancy policy is the textbook example), forcing existing borrowers into refinance not by choice but by lender attrition. The non-bank market provides continuity in these moments, typically 100–200 bps above bank pricing but with materially more flexible covenants and LVR.

Private credit

Australian private credit funds have expanded the available capital pool meaningfully since 2020 and now compete actively across mid-market commercial ($3m–$50m loan sizes). Private credit typically prices between non-bank senior and mezzanine — indicatively 9–12% all-in on senior security in 2026 — and offers flexible covenant structures, willingness to take complex transactional positions, and faster execution than bank lenders. The lane is particularly suited to transitional deals, complex sponsor structures, and bridging acquisitions where a permanent refinance is mapped out 12–24 months ahead.

Refinance is the most natural moment to reshape the loan to fit the asset and the sponsor's current position. Five structural changes are worth explicitly considering at every refinance:

1. Interest-only versus principal-and-interest — and the length of any IO period
2. Loan term — 3-year vs 5-year vs 7-year bullet, with associated pricing trade-offs
3. Fixed vs floating rate, and any partial-fixed hedge structures
4. Single facility vs facility-and-overdraft for working capital flexibility
5. Covenant structure — ICR, LVR, payment performance, financial reporting frequency

Interest-only versus P&I is the highest-stakes structural decision. P&I builds equity faster (a 25-year P&I loan amortises roughly 25% of the original balance in 10 years on a 7% rate) and reduces total interest cost; IO maximises near-term cashflow and is often appropriate for assets being held for short-to-medium term capital growth rather than long-term cash yield. The right answer depends entirely on the sponsor's broader portfolio cashflow needs.

Covenant structure is the most under-negotiated element of commercial refinance. ICR (Interest Coverage Ratio) covenants set at 1.30× are the bank default but are tighter than necessary on most income-stable assets; negotiating to 1.20× or 1.15× is regularly achievable and provides material headroom for cashflow variability. Payment performance covenants and financial reporting frequency are similarly negotiable on most refinance transactions.

Refinance documentation is broadly the same as for a fresh commercial loan, with the addition of records relating to the existing facility. A well-prepared refinance submission settles in 6–8 weeks at a bank and 3–5 weeks at a specialist non-bank; a poorly prepared one routinely runs to 12+ weeks.

Existing facility documents

• Current loan agreement and any variation deeds
• 12 months of loan statements showing payment performance and balance
• Existing lender's discharge/payout figure (typically valid for 14–30 days)
• Any covenant compliance certificates issued in the last 12 months
• Any historic covenant breach notices and resolution evidence

Property documents

• Current lease(s) with all variation deeds
• 12 months of rental receipts and arrears records
• Current rent roll if multi-tenanted
• Tenant trading information for material tenants
• Building insurance certificate of currency
• Most recent council rates notice

Borrower documents

• Two most recent years of entity financial statements and tax returns
• Two most recent years of director/guarantor personal tax returns
• Current ATO Integrated Client Account portals (all entities and individuals)
• Current asset and liability statement
• Updated entity structure diagram and ASIC extracts

The economics of refinance only work once total transaction costs are netted against the pricing or structural benefit. Five cost lines apply on almost every commercial refinance:

As a working rule, total refinance transaction costs run 1.0–2.5% of the new loan amount, with the lower end achievable on simple bank-to-bank straight refinance and the upper end typical for transitions across lender types or where significant cash-out is involved. On a $3m facility, that is $30–75k of transaction cost. A 100 bps pricing improvement on the same facility is $30k per year — meaning a 12–30 month payback period on the refinance investment.

A clean commercial refinance executes on a predictable timeline if started early enough. The risk is starting late and being forced into a sub-optimal lender or structure because the existing facility maturity is bearing down. Start the process at minimum 4–6 months before maturity for bank refinance, 3 months for non-bank refinance.