Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 1, 2012

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Many business owners decide to refinance a commercial loan due to changing economic conditions or to take advantage of low interest rates. There are several steps to follow in order to do this. Questions and answers about commercial loans can provide further information for interested borrowers.

First, borrowers should decide which of the following lenders to approach:

  • Credit unions
  • Banks
  • Online p2p lenders

Different lenders may quote applicants different interest rates, so it is in the best interest of prospective borrowers to seek out which lender is best for them and their business.

Borrowers should prepare their financial documentation for analysis by a lender. Banks, credit unions and other commercial loan lenders must analyze the following financial data:

  • Financial statements
  • Profit sheets
  • Tax returns
  • Cash flow
  • Business plans
  • Outstanding corporate debt

A lender will also analyze the debt-to-income ratio of the business. This analysis will tell lenders whether or not the business is too far in debt to refinance or if the business is not generating enough income to make future payments on a refinanced business loan.

The following fees are part of the business lending and borrowing process.

  • Application fees
  • Appraisal fees
  • Prepayment penalties

Borrowers should evaluate if these costs still make refinancing worth pursuing.

Applicants with credit problems, such as a low business credit score, should try to improve their credit situation before applying for a refinance commercial loan. Prospective borrowers should be prepared to explain any problems in their business’ credit history when asked by lenders.

Ideally, borrowers should try to refinance a business loan into one with a fixed interest rate. Fixed interest rates do not fluctuate, which can cause financial problems for an already indebted business when it comes time for monthly payments.

Most commercial loans require collateral be offered up in order to secure the lent money. Business owners should feel comfortable with the collateral they have offered since it can be seized in the event that default occurs.

After applicants have decided which lender to go with, they should attempt to negotiate for a lower rate. Once satisfied with the offer, they can then close the deal.