Business Loan Refinancing

Business loan refinancing works on the same principle as other types of loan refinancing: reduce outgo by paying lower interest.  Oddly, you will likely need an exceptionally strong business plan to capture loan refinancing for your business.

Often businesses take on more debt just to continue to operate. However, now may be the best time to consider business loan refinancing.  It is a good time to consider a refinancing if the interest rates are lower than what you originally negotiated on your loan.

The Reason for Refinancing A Business Loan

When refinancing a loan, the purpose is to take the original debt and transfer it to a new form with different terms. If a business has more than one loan, this may mean going from making multiple monthly payments to having just a single monthly payment.



Business loan refinancing should primarily be used to improve the business in some fashion or make it easier to maintain daily operations. For example, by paying off other creditors a business can improve its standing and may thus increase its monthly income. If the business has been floundering, obtaining better loan terms could potentially reduce the risk of any looming legal problems.

The Importance of Collateral in a Refi Loan

The vast majority of refinance loans are based on collateral which means it is a secured loan. This includes any assets which are included as part of the business such as the physical building, internal fixtures including cash registers, computers, and shelving, and also any inventory. All of these items can be used to support the loan so that if something dire happens in the future the lending institution will have some means of recouping their losses.

Many lenders will refinance up to about 80% of the value of whatever collateral is offered. Your repayments and the schedule will be determined by the actual collateral, the amount of money borrowed, and how much of a risk the lending company perceives the business to be.

Consideration for Business Loan Refinancing

The Small Business Administration (SBA) does offer a number of guaranty programs to help assist you with the process of business loan refinancing so it’s in your best interests to make sure you contact this organization first. They have a number of counselors who will be able to provide you with information and support to help ensure you secure a loan that is really good for your business.

Before you actually sign any loan contract you want to take the time to compare interest rates and terms among lending institutions. Sometimes there are hidden changes such as interest rates that change after a specified period of time or a fee charged for actually refinancing.

Also make sure there is no pre-payment penalty for paying off your original loan ahead of schedule.  This kind of penalty can destroy any benefit you might have derived from refinancing.

You need to know about any of these costs up front to make sure the secured loan really will help rather than hurt your business. After all, you’re going through this process to make sure your business can continue to operate in the black- not to put it further into the red.

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