How to refinance your business loan?

There are many reasons why you need to refinance your business loan. And refinancing a business loan is possible. For example, if the interest rate has dropped since you took the original loan and you qualify for better interest rates or if you want to reduce your EMI, then refinancing your loan is possible to manage your cash flow. Refinancing is a straightforward process a business owner can go for.

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How To Refinance Your Business Loan?

 




 

There are many reasons why you need to refinance your business loan. And refinancing a business loan is possible. For example, if the interest rate has dropped since you took the original loan and you qualify for better interest rates or if you want to reduce your EMI, then refinancing your loan is possible to manage your cash flow. Refinancing is a straightforward process a business owner can go for. 

 

Taking a small business loan involves a process that includes refinancing too. Things to consider would be whether you want to refinance from the same lender or another lender. Before refinancing, you will always want to take your business in the best possible way, which can be done with the following steps. 

 

What Is A Business Loan?

 

Business loan refers to funds that small business owners require to fulfill company expenses like expanding the business, payroll, equipment expenses, etc. Many lenders offer business loans, and there are different business loans available for small business owners. Business owners must repay these loans with the principal and interest amount back to the lender in the schedule. 

 

Refinancing A Small Business Loan Is A Straightforward Process

 



 

1. Understand the goal and determine how much you already owe

Before refinancing the loan, you should understand the goal and reason for refinancing so you can land the best possible deal for your business. Consider your aim, whether you want to lower your monthly installments, the cost of your debt, or switch to something else. Business owners should pay off their existing debts before applying for new ones. 

 

Gather the details of your debts from which you can identify the new requirements. Refinancing will only make sense if you save money either by lowering monthly payments or reducing interest rates or by any means. 

 

2. Analyse your Business Finances and check your eligibility

Study your overall business finances, like credit score, revenue, bank statements, existing debts, and current monthly payments. With this, you will be able to check your eligibility and if that will fulfill your needs. Some lenders list certain criteria you must satisfy to qualify for refinancing your business loan. 

 

These factors heavily impact the ability to secure lower interest rates, more financing, longer-period of loans, and more. However you can secure a loan with bad credit, but if your goal is to refinance for better loan terms, then bad credit can be an obstacle. Also, check if there are any issues so that you can rectify them before refinancing a loan. 

 

3. Check the options to refinance your Business loan.

Business owners can consider different options for refinancing their business loans. Consider all these options and check which one suits you the best and fulfills all your needs. All of these options have different criteria and different interest rates and offerings. Some of these options that business owners can consider are:

 

  • Bank Loans

 

  • Small Business Administration Loans

 

  • Loans from Fintech Lenders

 

4. Collect the documents required and different research lenders

When you apply for refinancing your business loan, the lender will ask for certain documents to determine whether you qualify and what all discrepancies are there. The financial report helps the lender understand the credit risk, how much the business can afford to repay and more. The lender may ask for some of these documents:

 

  • Bank statement

 

  • Balance sheet

 

  • Profit and Loss statement

 

  • Government Identity proof

 

  • Incorporation documents

 

  • Business Insurance Plans 

 

Looking for the right lender is difficult while you are looking for refinancing. There are several factors for comparing lenders like interest rates, additional fees, Collateral, personal guarantee, repayment terms, and more. Remember to compare the lender you are currently working with. The current lender can be the best one possible. You will also have to hunt for lenders who qualify your business for refinancing.

 

5. Submission of Application

After you find the perfect business loan and lender for refinancing, you must submit your application online or in person to your lender. Ensure you provide all the relevant details and documents simultaneously so that your loan can stay in between and the process goes smoothly. Few lenders may immediately let you know if you qualify, and some may take some processing time – a few hours or a few days. 

 

Business loans suitable for refinancing

 

It’s possible to refinance any business loan. Here are some business loans you can refinance with a new loan.

 

  • Term Loans 

 

  • Line of Credit

 

  • Working Capital loans

 

  • Short-term business loans

 

  • Equipment loans

 

  • Business Credit cards

 

Tips on Refinancing your Business Loan

 

Refinancing a business loan can be the best decision for your business if you follow the right approach. We have listed a few tips that you can consider for refinancing your business loan.

 

Crunch the Numbers 

It is necessary to gather various refinance offers before you apply for refinancing your business loan. You must compare the correct loan details to ensure it’s the best deal for your business. Business loan calculators are available on the internet from where you can calculate and compare multiple refinancing offers.

 

Check the Penalties 

The existing debt of your business might charge some penalties for pre-closure or prepayment. You should check these and compare whether or not refinancing is beneficial in monetary terms for your business. If this situation applies, consider this factor a potential cost.

 

Be Careful about your Debt 

Choosing an affordable loan for refinancing your existing debt can help you save money for your business and pay off your debt faster. However, you have to be careful. Otherwise, you might run up more debt for your business. 

 

Pros and Cons of Refinancing your Business loan

 



 

There are benefits and drawbacks to everything, and so is the case with refinancing your business loan. And every business owner should consider and check whether refinancing their business loan will be wise or not. 

 

Pros of refinancing your Business Loan

  • You will save money – By refinancing your business loan, you will be able to lower your monthly payments and pay less interest.

 

  • Improvement in Cash Flow – Looking for new loans that will lower your monthly installments can reduce the company’s cash flow stress. 

 

  • Build Business Credit – Refinancing can allow you to establish a good payment history on your business credit reports if the new lender from whom you are refinancing reports to business credit bureaus. 

 

Cons of refinancing your Business Loan

  • Hurdles in qualifying for refinancing your business loan may come when you think of refinancing your business loan. If you have bad credit or the documents are fraudulent or incomplete, you may not qualify for refinancing your business loan. Also, if you find a lender who gives you a loan, the new loan offer will need to be more competitive for your business to save money.

 

  • Penalty charges – Your current loan may charge prepayment or pre-closure penalties, which will not benefit your business. These penalty charges can offset your savings.

 

  • High Cost – After checking all the possibilities and benefits, you may be motivated to refinance your business loan to set up more affordable payment options. However, if you try doing this by extending your term loan, you might have to pay more interest in the long run. 

 

Can business owners refinance a commercial loan?

 

Yes, business owners can refinance a commercial loan – a real estate loan. Some banks offer to refinance. You can choose for refinancing, keeping in mind the fees, charges, closing costs, and more. 

 

Summary

 

Refinancing is easy and possible for your business loan. There are certain factors and tips on refinancing that I have mentioned in this guide that you can consider when you are planning to refinance your business loan. Refinancing is a process, and every business owner should follow it to benefit their business. Refinancing is necessary when you think you are getting the new loan at a lower interest rate or want the monthly installments to reduce. 




Faq's

Yes, refinancing is taking a new loan which will benefit the business compared to the existing loan.

It is optional to go for refinancing. One can only go for refinancing if required.

The interest rate can stay the same if you refinance your business loan.

Yes, you can refinance your business loan with the existing lender.

Loan seekers must submit all the required documents to the lender to refinance the business loan.

No, you cannot refinance SBA loans.