How to refinance a business loan

As interest rates drop, many businesses are reevaluating their current loans and looking for opportunities to refinance existing debt to optimize their financial position. Lower interest rates present the opportunity not only to reduce costs of borrowing, but also to free up cash flow to fuel growth and capital investments.

If you took out a loan when your business was just starting up or some time has passed since, it’s likely that you’ll now have access to a wider range of business financing possibilities than you did back then.

Since applying for your original loan, your business may have grown and become more established, you may have built up a business credit history, and you may even have some collateral to put down for a new loan. 

As a result, your business is likely to be much more attractive to lenders and you’re more likely to get approved for more competitive business loan rates and terms, making now a good time to refinance. Here, we explain all you need to know about refinancing a business loan. 

How does debt refinancing work?

When you refinance a business loan, you simply take out a new loan to repay your existing one. 

There are many benefits to doing this. For a start, it could allow you to take advantage of lower interest rates, making your new loan much cheaper than your existing one. Alternatively, refinancing could enable you to choose a longer loan term and reduce your monthly payments, or it could allow you to borrow more to improve your cash flow.   

Refinancing can also enable you to consolidate or combine a number of different loans into one loan with one lender and a single monthly payment. This can make managing your business finances much easier. 

Is refinancing right for your business?  

To decide whether refinancing is right for your business, it’s worth asking yourself the following questions…

• • Is your business in a good financial position? Has your business credit score and revenue improved since applying for your first loan? If the answer is no, it may be worth waiting a while longer before refinancing.  

• • Is your personal credit score up to par? Lenders may look at both your business credit score and your personal credit score before deciding whether to let you borrow. 

• • Why are you refinancing? Will refinancing enable you to take advantage of lower interest rates, smaller monthly payments or a longer repayment term? If not, it may not be worth refinancing.

• • Will you have to pay a fee for refinancing and how much? You may have to pay an application or origination fee of 0.5% to 5% for your new loan as well as an early repayment fee for paying off your existing loan ahead of schedule. Make sure you factor these in to see whether refinancing is still cost-effective.

Not sure whether you should refinance? With our refinance calculator you can estimate the savings and costs associated with refinancing.