How to refinance a business loan

Many businesses rely on credit and loans to cover shortages or finance expansion. Refinancing a business loan is one way to adjust the terms and interest rate of your business’ current loans.

Refinancing a loan means applying for a new loan and using the money to pay off an old debt. Refinancing your loan with your current lender or a new one gives you the opportunity to save money, lower your monthly bills and improve your company’s cash flow.

Refinancing isn’t difficult, but it does involve a few steps. We’re going to smash it.

6 steps to refinancing a business loan

You can refinance a business loan in six easy steps.

1. Gather your credit information

The first step in refinancing a business loan is to take inventory of your company’s existing loans. The main details to be determined for each loan are:

  • The type of loan (secured or unsecured, line of credit vs. term loan, etc.)
  • The unpaid balance
  • The interest rate
  • The monthly payment
  • The number of remaining payments
  • The total amount you will pay for the remaining term of the loan

Each monthly loan statement should contain these details, but you can always contact your lender to confirm if you are unsure. Having these details is essential for the rest of the process.

2. Define your goals

There are several reasons you might consider refinancing a loan, but the two most common are to lower your loan interest rate and lower your monthly loan payment.

If your goal is to reduce your debt interest rateyou only need to compare the interest rates of your existing loans with the interest rates available for new loans. If the new loans offer lower interest rates, refinancing can work.

If you want to lower your monthly payments, there are several ways to do so. Lowering the rate but keeping the term the same is one way. You can also extend the term of your loan. However, this has the disadvantage of increasing the total cost of the loan.

If you’ve completed step one of the process, you should know how many payments you have left and how much you’ll spend on each loan your business currently carries. You can look at new loan options and decide how much you are willing to increase the total cost of the loan to lower your monthly payment.

Note that if you have multiple loans, you can choose to refinance them individually or combine more than one into one new loan.

3. Check your credit and eligibility

Because you’re replacing your old loans, you’ll need to qualify for a new loan or loans. Before you spend too much time trying to refinance, make sure you have good shot in qualifying.

Some metrics to look at include:

Like high credit rating, a low debt-to-income ratio and high income will give you the best chance of qualifying for a new loan. Make sure you also look at any additional requirements that lenders mention, such as a certain length of time in business or no previous bankruptcies.

If you have heavy debt, bad credit or low income, you may find it difficult to refinance with favorable terms. Try to take a look bad credit business loansbut be prepared to wait until your financial circumstances are better to refinance.

4. Collect documents

Applying for a new loan to refinance existing debt means going through all the time Application process. Be prepared to provide documentation, including:

  • Business financial documents such as profit and loss statements, balance sheets, accounts payable/receivable statements, payroll records, commercial leases
  • Company tax number
  • Bank statements
  • Business licenses
  • Proof of collateral (for secured loans)
  • Disclosure of any other obligations
  • All relevant contracts, property agreements, etc.

You will also need to provide personal identification such as a driver’s license. Gather these documents before you apply to keep the application process smooth.

5. Compare loan options

Do your research to find the right lender. You’ll want to look at several different loan companies and compare different aspects of their loans, such as:

  • Interest rates
  • Origination Fees and Other Fees
  • Term options
  • Minimum and maximum loan amount
  • Collateral requirements

Also, check out their reputation and customer reviews.

Choose the lender whose loans will help you achieve your goals. For example, if you’re trying to lower the interest rate on your company’s debt, choose the lender with the lowest rates available. If your goal is to lower your monthly payment, you may want to focus more on lenders that offer long repayment periods.

If a lender offers pre-qualification, you can try pre-qualifying to get a better idea of ​​the exact rates and terms the lender will offer your business. As a bonus, pre-qualification only requires a soft credit check, so it won’t affect your credit score.

6. Submit an application

When you’ve identified the best lender for your company, it’s time to go for it submit the final application. Fill out the necessary documents and wait for the lender to make a decision.

When to refinance a business loan

Most often, refinancing is used to lower interest rates and lower monthly payments

Interest rates on loans are partially based on index rates and market forces, but your company’s credit and revenue also come into play. It means to decide when to refinance it can be difficult.

It may make sense to refinance if market interest rates have fallen or your company has improved its earnings or credit rating. If market interest rates have risen and your company is struggling, it may be difficult to qualify for a good refinance loan.

Frequently Asked Questions About Refinancing a Business Loan

  • In theory, you can refinance a business loan immediately. If you want to refinance with the same lender, they may not be willing to approve a new loan. And some lenders won’t refinance a loan until you make a certain number of payments. Realistically, things like loan origination fees add up if you try to refinance frequently, so you’ll want to wait at least a few months to a year between each refinance.

  • Yes, it is possible to refinance business debt with SBA loan. Note that SBA loans may involve more paperwork and takes longer to approve compared to other types of loans. The SBA may limit when you can use an SBA loan to refinance other debt.
  • Refinancing can come at a cost. If your existing loan has a prepayment penalty, you will have to pay it. Your new loan may have an origination fee or have a higher total cost than your previous loan. You must cross the numbers to determine whether the additional cost is worth the benefit.

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