Should Your Company Refinance its Business Loans?

If you are a business owner who is trying to figure out if debt refinancing is right for you then this is the right article for you. We will cover how you determine if you need refinancing, the pros and cons of refinancing, types of debt that can be refinanced and much more.

Do You Need Refinancing?

A thorough review of your financial statements is the best way to determine if your company has a debt problem. You can also ask yourself the following questions and if you answer yes to any one of them, you might benefit from refinancing your debt. If this is the case, consider a more in-depth review.

  • Are loan payments taking up your revenue? – the most common symptom a company has is that it spends most of the cash they have available on loan payments. This is an unhealthy situation for the company. It is often not sustainable and can lead to serious financial problems. You should know if you are spending most of your cash paying for debt but also double check your financial statements to make sure.
  • Are you juggling debt or supplier payments? - Another sign of financial problems is juggling supplier and debt payments. Your cash flow has a problem if you are juggling these.
  • Do you have a high interest rate? – you might want to consider refinancing your debt if you have high interest rates compared to the market. Decide if refinancing is a good idea after you have examined the potential savings of having a new loan. Consider that you will also need to pay closing costs and other additional fees.
  • Do you have too many cash advances? - cash advances are fast but expensive financing. Many business owners do not use them correctly. They apply them to situations that cannot be solved with a cash advance which creates further problems. Things get worse if the business owner gets a new cash advance to pay for the first one.
  • Are you not able to buy new equipment? - If the new equipment is indispensable, consider refinancing your old debt. This allows you to get a new loan for the value of the new equipment plus the value of the old debt.

Advantages and Disadvantages of Refinancing


  • Lower monthly payments: loans are refinanced so the monthly payment is lower. This low payment relieves financial stress and frees up cash flow.
  • Better cash flow: the impact of the lower debt payment can be substantial. It improves your monthly cash flow and allows you to operate your business effectively.
  • You can focus on growth: companies that struggle with debt payments focus only on survival. You can focus on growing your business once your debt problem is handled.
  • Can be structured for growth: most companies refinance their debt to improve their cash flow. They expect that the incremental cash they get by reducing debt payments will be enough to sustain growth. Sometimes this gain is not enough, and you need more funds.
  • Payment management is easy: managing a single debt payment is easier than managing multiple ones. This applies only to companies that are consolidating and refinancing multiple loans into a single one.
  • Available to small businesses: many lenders work with companies that have as little as $500,000 in debt and a couple years of business operations experience.


  • Longer debt terms: your monthly payments are going to be lower, but they will need to made for a long time. You will have to pay more than you would have paid with your previous loans.
  • Requires discipline: you must be disciplined to ensure that your financial problems do not occur again.
  • May not solve your problem: it can solve previous bad financial decisions but not fix a broken business model.

The Bottom Line

Many people consider refinancing their business loans, but there are certain things to consider before you do. It is not for everyone so after reading this you should have a better idea if you should refinance your loans or not.