How to Refinance a Business Loan

At some point, a small business owner might need to take out a loan to help with the growth of the business. However, it can be difficult for an owner to repay the obligations especially if your business is not growing at the pace you had expected. Struggling to repay your small business loan can cause a lot of stress and overwhelm, luckily you can consider refinancing your current business loan and achieve your business goals. Loan refinancing is when you secure a new loan with more favorable terms to offset the current one. Beforehand, you need to ensure that your business is eligible for a business loan to refinance.

Qualifications for a Refinance Business Loan

Before banks and financial institutions consider you for refinancing, they will first evaluate your current business loan. The following are some important factors to look out for before approaching a financial institution for refinancing:

  • Credit score: your credit score needs to be higher than when you applied for your current loan. The credit score is an important aspect that determines your eligibility for refinancing.
  • Two years rule: your business needs to be operating for more than tow yours to be eligible for refinancing business loan. You will have a better chance of getting refinancing than if your business are less than two years old because lenders are more reluctant.
  • Financial milestone: if your business has achieved a significant milestone such as an increase in annual revenue.

What to Consider Before Refinancing the Loan

There are some considerations you need to make to determine if the action is viable including:

  • What is your refinancing goal?
  • What are your current business debts and what caused them?
  • What are your current business finances?
  • What refinancing options are available?
  • Are the options worth applying for? Why?

Ask yourself these questions and answer them honestly to help you decide if your business needs a refinance loan.

How to Get a Refinance Business Loan

It is difficult to acquire a loan or even refinance one because the banks have high interest rates. However, the Small Business Administration (SBA) loans make it possible for small businesses to get loan refinancing at favorable rates.

The SBA allows for loan forgiveness in the case where a business is not able to meet their debt obligation. The SBA loan is the most suitable type of loan for any business. They reduce the lender’s risks by paying up to 75% of the loan if the business defaults in the repayment of the loan.

There are some SBA eligibility requirements you must meet to be eligible for an SBA loan. Your business also must fit the government’s definition of a small business in its given industry.

Pros of Refinancing Your Current Loan

  • Lower rates: low rates will let you have extra funds to reinvest back into your business.
  • Reduced loan repayments: you can select low repayments so you will not have a financial burden.
  • Fixed rate: enables you to plan your financial obligations.
  • Increased cash flow: your day to day cash flow can help your run your business more efficiently.
  • Easy debt management: you can consolidate your loan into one.
  • Accessing equity: you are eligible to access equity and use it to expand your business.
  • Security on personal items: you can have your personal assets released and use the business assets as collateral.
  • Flexible loan features: you can select flexible financial package compatible with your business.

Cons of Refinancing Your Current Loan

  • Good credit: you need to have excellent credit.
  • Cost of refinancing: you may incur certain fees for refinancing a new loan.
  • Incur more charges when setting up a new plan with a new lender or institution

The Bottom Line

It is important to make the right financial decisions for your business. Business loans play an important role in the growth and development of your business. When you are considering refinancing your business loan, you should be careful to select a loan package that is suitable for your business.