| For | Owners facing a commercial mortgage maturity or bridge takeout |
| Key calculation | Payoff plus new closing uses, less available new financing |
| Example | Original hypothetical, not current lender terms |
| Review | Property income, valuation, liquidity and repayment timing |
A commercial refinance cash-in gap is the amount you need to contribute when the new financing will not cover the old payoff and the other required closing uses. A performing property can still have a gap. The next lender may use different income assumptions, debt-service requirements or valuation limits from those used when the existing loan was originated.
Start with a sources-and-uses calculation before focusing on a quoted rate. A lower payment is not enough if the loan proceeds leave an unfunded closing. This guide explains a practical way to identify that problem early and prepare a complete request for commercial lender review.
Build the payoff side from actual obligations
Obtain a current payoff estimate from the existing servicer and identify the contractual maturity date. Principal on a statement and the amount required to release the loan can differ. Accrued interest, contractual exit or prepayment charges, legal costs and other items may need to be included. The final payoff will be date-specific.
Then list the proposed transaction's expenses, escrow deposits, lender reserves and any necessary property work. Track existing reserves separately: do not count them as available closing funds until their release amount and timing are confirmed. Also distinguish money usable at closing from money that must remain available afterward.
Understand the limits on the new loan
Loan-to-value, or LTV, compares the loan with the value accepted by the lender. Commercial debt-service coverage divides lender-underwritten annual net operating income by required annual debt service. Some lenders also assess debt yield, which compares underwritten annual net operating income with the loan amount. These measurements answer different questions and may produce different maximum proceeds.
The OCC's refinance-risk guidance specifically addresses the risk of replacing debt under changed market and borrower conditions. It supports reviewing the next loan's requirements before maturity; it does not establish a universal LTV or coverage threshold. For definitions, see our guide to commercial loan sizing.
A hypothetical cash-in calculation
Assume a property has $240,000 of lender-underwritten annual net operating income and an illustrative accepted value of $3,600,000. For this example only, use a 70% LTV ceiling, 1.25 coverage requirement and 9% annual debt-service constant. The constant means annual debt service divided by loan balance in this model. It is not an advertised note rate or an available quote.
| Calculation | Result |
|---|---|
| Value limit: $3,600,000 × 70% | $2,520,000 |
| Maximum annual debt service: $240,000 ÷ 1.25 | $192,000 |
| Coverage-based proceeds: $192,000 ÷ 9% | About $2,133,333 |
| Lower of the two modeled limits | About $2,133,333 |
Suppose the payoff is $2,350,000 and the new closing costs and required deposits total $85,000. Required uses are $2,435,000. Subtracting modeled proceeds of approximately $2,133,333 leaves a cash-in gap of approximately $301,667. Further underwriting limits could reduce proceeds again. Do not treat the larger $2,520,000 value-based figure as an approved loan amount.
Now reduce underwritten income by 10%, to $216,000, while retaining the other assumptions. Coverage-based proceeds fall to $1,920,000: $216,000 ÷ 1.25 ÷ 9%. The resulting gap is $515,000. This sensitivity check shows why collecting current operating information matters even when a borrower expects the appraisal to remain unchanged.
Separate a temporary problem from a permanent shortfall
An unfinished improvement or pending lease commencement may create a timing issue. Persistently weak income relative to debt may require a different capital structure. Describe what changes, who controls it, the cost, and the evidence supporting the expected result. A signed lease, a tenant's actual payment history and an unsupported forecast are different kinds of information.
A bridge loan may provide time to complete a credible business plan, but it creates another repayment date and its own costs. An extension of the current loan may be worth discussing, but it remains subject to the existing lender's decision and documentation. Neither should be assumed to eliminate a cash gap. Compare the proposed bridge exit with the commercial refinance preparation guide.
Practical options to bring into the discussion
- Documented borrower cash: identify the amount and retain adequate operating liquidity afterward.
- Improved operating evidence: correct inaccurate expenses or missing income with records, without inventing future performance.
- Changed financing structure: compare actual lender proposals and their full costs, reserves, guarantees and repayment obligations.
- Additional capital or collateral: disclose the proposed source and obtain the required lender and legal approvals.
- Sale or partial asset sale: model net proceeds, release requirements and timing rather than relying on an asking price.
Avoid taking on undisclosed debt to fill the gap. A second lien, partner advance or borrowed contribution may change eligibility and repayment capacity. Explain the entire capital stack at the start so a proposed solution does not create a new closing condition later.
Prepare the file for Stonehaven
Send the property type and location, approximate payoff, maturity, current rent roll, operating summary, requested financing and the cash you expect to contribute. Keep private financial documents out of the initial public inquiry; arrange their delivery during follow-up. Stonehaven arranges financing through third-party lenders and can help frame the request and compare placement options. Start with commercial bridge financing or our commercial financing review. We follow up by text.
Frequently asked questions
Can I have a gap even if I never missed a payment? Yes. Payment history is important, but the new loan must satisfy the new lender's underwriting and cover the required closing uses.
Will a higher appraisal solve it? Only if value is the binding limit and the lender accepts the valuation. A coverage constraint can remain even with more collateral value.
Is a cash-in refinance automatically a bad outcome? No. Assess the resulting debt, liquidity, costs and business plan. The contribution should be a deliberate capital decision, not an unexpected closing-day problem.
When should I start? Start while there is time to collect records, evaluate options and address a gap before maturity. The required lead time varies by property and lender; no closing timeline is guaranteed.