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If you are having trouble meeting your monthly payment obligations, your best strategy might be to refinance your business loan. A loan refinance is different from loan consolidation in the following ways:
Loan consolidation: this is bundling separate loans together, so you only have payment. It is a good way to simplify your monthly obligations but does not mean that you will save money.
Refinancing: this replaces one or more loans with an entirely new loan with better terms and rates. The new loan will pay off the expensive loan, leaving you in a better situation. Refinancing is by far the better way to save money.
Some good reasons to seek out a lower-cost consolidation loan are less frequent payments, smaller payments, longer terms, and lower APR.
The following steps should be taken to improve the finances of your business.
Determine Whether You Are in a Situation to Refinance
Get a handle on all of your debts so you know where you stand. Some of the elements you need to know include:
- How much you need to payoff current loans
- Your total amount of loan payments each month
- The interest rate of each loan
- The number of months remaining on each loan
- Payment frequency
- Penalties for early loan payoff
Determine the Refinancing Goal
Ask yourself why you want to refinance one or more loans and what the benefits are that you will gain from it. Do you want lower monthly payments or to lower the total cost of your loan? It is essential to establish what goals you are trying to reach before you start the process.
Put Together a List of Debts
The business debts most often refinanced are high-interest loans with daily or weekly repayment schedules. These loans include business credit cards, merchant cash advances, short-term loans and more. Make sure to list all the debts out.
Review the Financial Details
Refinancing is supposed to bring the cost down so do your research on all the components of a possible refinanced loan. Components of a refinanced loan include the interest rate, closing costs and the loan term.
Consider the Lender Options and Pick the Right One
Take the time and thoroughly research the options you have including checking out the rates, fees, and penalties for prepayments on the websites of the lenders. Research reviews online such as TrustPilot, Google Reviews, and The Better Business Bureau. Also, be sure to know how long the application process is and how long it will take to get funding.
Use an SBA Loan as Part of Refinancing
SBA loans available for debt refinance have low rates, a 10-year term, and low monthly payments that won’t cut into your cash flow. Some reasons an SBA loan is an excellent option for refinancing expensive debt are so that you can build your business credit, you do not have any prepayment penalty, and it is available nationwide.
SBA loans can be used in various ways. If you have funds leftover after refinancing your loans you can use the money for working capital, equipment purchases, new inventory, hiring staff, marketing, and much more.
Apply to Lenders
Once you have decided that refinancing your loan is the right option for your business and have found a lender you want to work with, it is time to get prepared. The first step is to make sure you meet the requirements, so you are eligible.
The following are some requirements you will need to apply for an SBA 7(a) working capital or debt refinance loan:
- Time in business needs to be 2 years or more
- Business owner’s personal credit score needs to be 650 or higher
- Must not have outstanding tax liens
- No bankruptcies or foreclosures in the past 3 years
- No recent charge offs or settlements
- Current on government-related loans
The following are documents that you might need to apply for a debt refinance loan:
- Business financials
- Profit and loss statement
- Projected financials
- Ownership information
- Business licenses
- Business leases
- Business tax returns
- Personal tax returns
