At some point, every small business will need to access credit if they have any reasonable expectation of completing their strategic growth initiatives. Like home mortgages, equity lines, and other personal loans refinancing your business loans can be a good strategy for lowering your monthly costs and saving on interest.

Your existing loans are refinancable, and when you apply the new terms, the process is not unlike applying for a new small business loan. The purpose of the refinance loan is to pay off your existing debt. Under ideal circumstances, you’ll gain a more favorable rate and term. Aside from lowering your costs, refinancing comes with several more benefits.

Refinancing may present an opportunity to enhance your company’s existing debt portfolio in a way that allows you to streamline accounting, access more credit, and increase your monthly cash flow. Should the opportunity to refinance present itself, and it is clear that you can save on borrowing costs, it’s always wise to take advantage of it.

However, under some circumstances, refinancing may not be the best option for your business, and it’s certainly not the smartest choice in every situation. Whenever you refinance, having a productive goal in mind is essential. While there are dozens of good reasons to refinance a business loan, you always want to avoid creating a negative debt cycle, especially if you’re struggling to make payments on your existing obligations.

In this comprehensive guide, we’ll explore the best strategy for refinancing your current business loans. We’ll also discuss how your should approach the refinance process in a way that ensures that you optimize savings and improve your monthly cash flow.

Why should you consider refinancing business debt?

When you refinance, it’s important to remember that you’re not modifying an existing loan. Instead, you’re applying for a new loan with new terms to pay off your existing debt. You may have several options for refinancing which could involve your current lender or an entirely new small business creditor.

Generally speaking, when business owners refinance their current debt, the ultimate goal is to reduce interest, lower payments, and boost their average monthly cash flow. So, how can business debt refinancing help you achieve this? For a refinancing proposal to make sense, it has to present more desirable terms than the loan you’re obligated toward now. Some common advantages of refinancing your existing debts include:

• Lower interest rates
• Smaller monthly payments
• A longer repayment period
• A shorter repayment period (with a lower rate)
• Fewer payment intervals

If you’re considering business loan refinancing, keep in mind that you’ll have more than option to explore. For instance, you can pursue a traditional bank loan through various commercial funding options, apply for financing online, or seek refinancing credit from the Small Business Association (SBA).

While there are several paths you can follow for refinancing business debt, whether or not you qualify depends on your credit circumstances and if they fall within the lender’s specified underwriting guidelines. Conditions for establishing creditworthiness vary from lender to lender, especially in the world of commercial financing. Moreover, determining whether you qualify depends on the standing of your current loan and your business details.

While, for instance, the SBA does allow you to refinance existing debt into its program, your business still needs to fulfill a specific set of criteria that outlines the use of the loan proceeds, your available collateral, and current business loan rates. If you currently have an SBA, it’s possible to refinance it through the SBA, but rarely does this happen.

Borrowers who want to remain in their SBA loan will typically pursue a loan modification option if they want access to additional capital or a lower interest rate. If, for some reason, a modification isn’t possible, and better SBA loan terms exist, then, theoretically, you might be able to pay off your existing SBA loan and refinance it into a new one.

What’s the difference between business loan refinancing and loan consolidation?

Even though consolidation is technically a refinance process, it’s not the same as refinancing a business term loan or line of credit. When consolidating your business loans, you’re combing multiple debt obligations into a single loan used to pay off those debts.

There are several advantages to consolidation over paying several loans separately. For one, you simplify debt management by pulling all your current obligations into one loan. Secondly, if you’re carrying high-interest lines of credit, for example, you may save on interest by paying them off with a new low-interest term loan. Depending on your circumstances, consolidating could free up the credit lines and gives access to more revolving business credit.

However, debt consolidating doesn’t always present a savings opportunity. Some businesses pursue these consolidation options on the mere basis that they allow them to gather all their debts under one payment to simplify debt management and make their credit obligations more manageable.

How to refinance business debt

There are several ways to go about refinancing your business loans, and it’s ultimately up to you to determine the best approach to lowering your monthly expenses and increasing cash flow. Nevertheless, there are a few strategies for getting started.

Before you can even begin exploring loan pricing and lender options, you should first establish why you need to refinance and what you aim to achieve by so doing. Are looking for a better interest rate and lower monthly payments. Or are you looking for a loan program that allows you to make payments less frequently than your current loan? If you do refinance, will current lending conditions allow you to reduce the cost of your debt?

If you can reliably answer the series of questions listed above, then you should arrive at a reasonably sound conclusion about whether or not it makes sense to refinance. At this point, you can move and start diving into the specifics regarding current interest rates and the most favorable loan terms.

As you start shopping for your best business debt refinancing options, remember to take stock of how much you currently owe on the loan you’re refinancing. You should also pay attention to the remaining time left on the loan term, your interest rate, and amortization schedule.

Some creditors impose refinance penalties. If you’re subject to one, you should factor this into the cost of refinancing your business loan to ensure there’s still a benefit to taking out the new loan. Before you get too far along with researching prospective lenders, you should conduct an independent evaluation of our current loan and your business’s eligibility for the loan types you are interested in to avoid getting too far ahead of yourself. If you follow this approach, you won’t find yourself wasting valuable time that’s better invested elsewhere.

A vast majority of small business creditors will want to look at your personal credit score in addition to the length of time you’ve been operating and how much revenue your company generates annually. Loan underwriters will also examine any available assets you hold, such as your office building if you own it, average cash flow, and the amount of capital you’re holding in financial accounts.

To determine if there’s a benefit to offering you a refinance loan and evaluate risk, creditors typically want to see that you’ve improved your financial situation and credit profile since you first originated your current loan.

Ready to start refinancing your business loan?

Once you’ve followed the steps above, and you feel confident that refinancing benefits you, getting started with the business refi process is reasonably straightforward. All you need to do is gather your documents and submit a new application.

To find out more about current interest rates and whether or not refinancing your existing business loan now benefits you, contact New Bridge Merchant Capital today for a more in-depth analysis of your business credit profile.