Commercial refinancing can improve a facility, but compare the total cost of staying, repricing with your current lender and switching. A lower rate or monthly repayment alone does not establish a better outcome.

The good: a better-fitting facility

A new lender might offer a more suitable term, repayment type or flexibility after reassessing the property, borrower and business position. If a private facility solved a short-term problem, improved documentation or repayment conduct may support a new assessment. Ask the current lender whether it can reprice or restructure first; remaining avoids some switching costs. Any offer remains subject to credit and valuation.

The bad: upfront and ongoing costs

Get an itemised payout and quote. Include fixed-rate break or early-exit charges where applicable, discharge fees, establishment and application costs, commercial valuation, legal work, ongoing account or review fees and any tax or duty consequences that need professional advice. Compare the same balance, repayment type and holding period. Do not assume a valuation will match your estimate or that an advertised fee waiver applies.

Hypothetical interest-only illustration: on a constant $1 million balance, a one percentage-point lower annual interest rate gives an initial interest difference of $10,000 per year before fees, tax, rate changes or balance changes. If switching costs total $15,000 and the rate gap stays constant, a simple break-even estimate is $15,000 ÷ $10,000 = 1.5 years. This is not a quote or forecast; interest-only balances, variable rates, fees and holding periods can change the result.

The ugly: longer-term interest and security

Extending the term or switching from principal-and-interest to interest-only can reduce regular payments while leaving more principal outstanding and increasing total interest over the life of the debt. Review guarantees, additional property security, financial covenants, annual reviews and default terms. A proposed cash-out or consolidation may put more debt against the property; assess the purpose separately from refinancing existing debt.

For example, if settlement is delayed while a private facility approaches expiry, extension interest and legal costs may erode the anticipated benefit. Request a written comparison of the new lender’s conditions and realistic completion timetable.

Decide using the full position

List the current balance, rate, repayment, remaining term and payout cost beside each proposal. Calculate an estimated cost over your intended holding period, then test a rate change or earlier sale. Consider whether cash flow, flexibility and security obligations suit the business, not simply whether year-one interest appears lower.

Frequently asked questions

Is a lower rate enough to switch?

No. Deduct switching costs and compare the loan term, repayments, security and conditions. A rate advantage may take time to recover.

Does a lower monthly payment mean a cheaper loan?

Not necessarily. A longer term or interest-only period can defer principal and raise total interest.

Could the lender pay for the valuation?

Some offers may contribute, but eligibility and exclusions vary. Confirm the cost and who pays if the application does not proceed.

Can business debt be consolidated?

Possibly, subject to purpose and lender assessment. Spreading short-term debt across a longer secured term can increase total interest and property risk.

For timing and policy considerations, read the private-lender exit and loan-comparison guides in Related articles below.

This article provides general information only and does not consider your objectives, financial position or needs. Commercial finance is subject to lender policy, valuation, servicing, loan-to-value requirements, credit assessment and approval. Rates, fees and policies can change. A lower rate does not necessarily produce a lower overall borrowing cost.

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