Loans for Refinancing – Are They Worth It?
Do you feel like you’re paying too much interest on your current business loan? Or perhaps you feel like you need to cut down on your current loan repayments? If that’s the case then it might be worth you looking to refinance business debt. If it’s been a while since you took your business loan then your existing lender probably has an outdated interpretation of your business anyway. Remember, refinancing isn’t always about debt consolidation (even though this can be a very useful thing to do) and you may be able to cut down on your repayments, or take a loan with a lower interest rate, simply by refinancing just one existing business loan. Commercial loan refinance is more common than you think – we’re often encouraged to stay on top of our personal finances but refinancing your business loan is definitely possible too. In this article we’ll explore the steps involved to refinance a business loan and review whether it’s worth it.
How to Refinance a Business Loan
If you’re wondering how to refinance a business loan, then it is actually very straightforward nowadays. You can conduct a company refinancing with either your existing loan provider or a new lender which will allow you to refinance business debt. The complete process to refinance a business loan would look a little like this:
Consider if company refinancing is a net benefit for your business. Calculate exactly how much interest you pay on your existing debt obligations and get a sense if this is too high – or perhaps you know you won’t be able to achieve a better interest rate elsewhere but you may be able to extend a loan and repay a smaller sum each day/week/month depending on your repayment schedule.
Refer to your existing loan terms and check if there are early exit fees. As a general rule of thumb the new breed of online lenders have waived early exit fees in their T&C’s but if you have a loan with a bank then there’s a chance they may apply.
Compare your terms with what could be available in the market today. If your credit situation has improved you may simply be able to negotiate more favourable terms with your existing provider. If not there are a plethora of options to choose from nowadays with both online lenders and banks. You can even use a loan marketplace to compare multiple options for you.
If improved terms are available, apply for a new business loan. Remember, it may prove easier to use a lending marketplace, such as Become, to find multiple loan options and find a lender that will provide the best terms to fit your business profile.
Rubber Stamp your new loan arrangement. Providing you can provide everything they ask, most online lenders will provide a response same-day and disperse funds the next business day.
Complete your commercial loan refinance – after receiving your funds, settle your outstanding debt obligations and work to your new repayment schedule (whether with your existing or new provider).
Loans for Refinancing – What Costs Could be Involved?
Ideally, you should only really incur an origination fee on your new business loan when looking to refinance business debt. There are however a number of other potential costs that you may encounter throughout the process:
- Early Exit Fees: Lenders are required to allow borrowers to make an early repayment on their loan but some lenders, namely banks, enforce commercial loan refinance closing costs.
- Origination Fees: When agreeing to a new loan, borrowers are usually required to pay an origination fee between 2.5 – 4%. This doesn’t have to be paid upfront and is often factored into the repayment schedule.
- Valuation Fees: If you’re taking out a secured loan then the chances are you’re using an asset as collateral. This can be common when applying for equipment finance or asset finance. Some lenders charge a separate valuation fee whilst some are happy to offer this as part of an all-inclusive service. If you’re looking to refinance commercial vehicle loan or refinance commercial truck loan then a valuation fee could apply.
Despite these potential fees, you can still find yourself improved commercial refinance rates and save your business money.
Pros and Cons of Refinancing Business Loan
- Debt consolidation. By consolidating multiple debt obligations into one streamlined business loan, you save time for actually running your business.
- Finding a better rate. Usually the most important reason to refinance a business loan – make important savings for your business!
- Release securities used as collateral on existing loans. By switching to an unsecured small business loan, you may be able to free up assets currently used to secure existing loans.
- Increase cash flow. It might be that you want to lower your monthly loan repayments. This could involve paying a greater sum in the long run but can free up vital cash when it’s needed now.
- If you’re looking to lower your monthly repayments and find a longer term loan then the chances are you will have to pay more in the long run. For example you might be paying a number of short-term debt obligations with a consolidated long-term loan.
- If there are numerous costs involved in your company refinancing, and you aren’t able to achieve an improved interest rate/factor rate, then it may not prove worth it.
- If you have a strong relationship with your existing lender then it may not be worth passing this up for an improved rate.
- Ultimately, you are repaying an existing debt with new debt – like with any debt agreement, be absolutely sure you can afford the repayments.
Can I Refinance a Business Loan?
If your business has existing debt obligations and you are open to exploring the lending market for savings then you are definitely eligible for commercial loan refinance programs. And it’s not just for larger companies either – can you refinance a small business loan? Absolutely.
Taking on debt is an inevitable part of running a business in the modern age. Having access to cash flow, whether through a business line of credit, invoice finance or even business credit cards, is vital.
There are plenty of scenarios where you may need sudden access to cash. Perhaps a supplier is offering 30% off usual stock prices and even taking into account the loan costs, you can make a net saving on costs for new stock. Maybe you’re seeking renovation refinance loans as you need a facelift to your shop front or wish to invest in new technology that will improve how you do business – point-of-sale software for example. Or perhaps you’re looking to refinance commercial property with bad credit. Just because you have bad credit, it doesn’t exclude you from being applicable for commercial loan refinance. You’ll just have to understand what you’re looking to achieve – you may not be able to make interest rate savings but you might be able to lower your repayments or extend your loan duration
Ultimately, if you’re looking to refinance existing debt, you will just need to be able to demonstrate you can afford the new repayment schedule. Any cash-flow deficiencies you’ve had are a thing in the past or they are just a temporary part of your working capital cycle. The lowest interest rates are always reserved for firms with a strong credit history, solid financials and proof of regular tax returns, made on time.
When looking to refinance a business loan, you may need to meet certain criteria – typically a minimum time in operation (which shouldn’t be an issue once you reach the point of refinancing) and a minimum personal credit score. These don’t always remove borrowers who have bad credit – plenty of online lenders offer loans to borrowers who have a poor credit score. In some instances, you may need to provide copies of your existing loan agreements too.
Best Commercial Refinance Loans
If you’re looking for the best refinance lenders in California or the best refinance lenders in New York, then you don’t need to worry too much about state-based lenders. Most lenders, particularly with the rise of online FinTech lenders, offer their services throughout the US. Recommending the single best lender for you is not simple though. As each borrower is unique in its makeup and requirements it can be difficult to recommend a lender that is best for everyone. That’s one of the reasons we like to suggest a loan marketplace such as Become – simply answer a number of questions about your business, the type of funding you require and receive only the most appropriate loan recommendations that fit your requirements.
Final Word on Commercial Loan Refinance
It isn’t essential that you are looking to consolidate multiple loans and credit card obligations in order to explore company refinancing. Keeping on top of your business debt obligations is always worth doing and regularly checking the market for refinance rates with US banks or just general commercial loan refinance rates may provide an indication that your business could be saving money.
Refinancing a business loan may seem particularly applicable if cash flow is tight and you’re needing to make critical costs savings. Refinancing a business loan can be surprisingly quick and easy (achieving a cost saving without doing very much). It’s also important however to keep across your business’ cost, even when times are good. This proactive approach will aid your business should you encounter any difficulties in the future. It can be difficult to determine the exact business loan refinance rates you can achieve, but working with a lending marketplace could make the whole process much smoother. They may be able to provide a number of loans for refinancing the existing debt your business has. Company refinancing is becoming increasingly popular, particularly small business refinance loans. Just as you may look to refinance personal debt obligations, looking to refinance business debt is important when the time is right as well.