Business refinancing and debt consolidation

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At Swoop, we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. While we adhere to a strict editorial policy, our goal is to simplify complex matters, offer transparent information, unravel jargon, and empower businesses to confidently make smart financial decisions.

Page written by Chris Godfrey. Last reviewed on March 15, 2024. Next review due April 6, 2025.

According to the FT, UK SMEs were carrying £203 billion of debt in September 2022, almost £40 billion more than before the pandemic. However, instead of struggling to repay these old loans, many of which were taken out as emergency funding during COVID-19, businesses may wish to consider other options.

Business debt consolidation and refinancing may reduce their monthly payments, give them longer to repay, and even free up cash to meet urgent business needs. How does this work? Read on to find out if consolidating or refinancing your current business loans is right for you.

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What is debt consolidation?

Business debt consolidation means combining multiple loans from multiple lenders into a large, single loan from one provider. The new loan is used to pay off the older loans, and it may be paid back over the same or a longer or shorter time period than the previous agreements.

What are the benefits of consolidating business debt?

Business debt consolidation may deliver multiple benefits:

Save time and administration costs by only dealing with one lender instead of many.
You may be able to spread the payments out over a longer period than you had with the older loans. This may reduce the monthly cost, which could help your cashflow.
You may be able to borrow more than the value of the combined loans and use that cash for other business needs, such as tax demands, energy bills, business rates, or supplier invoices.
You may be able to reduce the interest rate and any extra fees. This may also reduce the monthly cost.
You only have to factor one monthly payment into your cashflow.
You may be able to set the repayment date for a time that works best for you (such as when your customers usually pay you).

Top tip: check to see if you must pay early repayment penalties on the old loans, and what fees the new lender may charge before you commit to debt consolidation. Also, remember that if you take out a loan for a longer period, even if the interest rate is lower than before, you may still end up paying more overall.

What is business refinancing?

Business refinancing is much like debt consolidation, except instead of taking out a new loan to pay off multiple loans, you only take out one new loan to refinance one old loan at a time.

What are the benefits of business refinancing?

The benefits of business refinancing are much like business debt consolidation:

You may be able to spread the payments over a longer period than the old loan.
You may be able to reduce the monthly cost, and/or the total amount you pay.
You may be able to borrow more than the value of the old loan and use that cash for other business needs.
You may be able to reduce the interest rate and any extra fees.
You may be able to set the repayment date for a time that works best for you.

What are the options for refinancing?

Refinancing means swapping one loan for another. Depending on the type of loan you are trying to refinance, and the purpose of the loan, there are several options to refinance your current business loans.

Popular refinancing loan solutions include:

Business loans: work like regular bank loans. Take out as new funding or to refinance existing debt.
Revolving credit facilities: an agreed credit pot that businesses may dip into as and when funds are needed. Pay off existing debt, cover general business expenses.
Asset finance and refinance: pays for plant and machinery, including commercial vehicles. Refinance your current equipment loans, or free up the sunk capital in hard assets that your business already owns to gain ready cash.
Commercial mortgages: depending on the loan-to-value of the property, (LTV), borrow against your business premises. Refinance your current business mortgage or use the funds to pay back more expensive short-term debt.

These loans may be offered on a secured or unsecured basis. (See below).

Secured debt consolidation loans

Secured loans require the borrower to provide collateral (security) to protect the lender from potential loss. Collateral is usually hard assets, such as property or machinery, but it may also include inventory, the value of unpaid invoices, and certain soft assets, such as patents and copyrights.

If the borrower defaults on the loan, the lender may choose to exercise their lien on the collateral and sell the assets to recover the funds they have lent.

Unsecured debt consolidation loans

Unsecured loans require no collateral, but they usually come with higher interest rates and fees. They many also offer a lower loan amount than a secured loan will bring. The borrower’s credit rating is more important with unsecured loans and a good credit score is usually required.

Top tip: don’t get caught out by an error on your credit report, always check your business and personal credit scores before you apply for loan refinancing (secured or unsecured).

Refinance calculator

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

Current loan

Remaining balance

.00

New loan

New loan term

20 years

Interest rate

This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

Your results

Principal/loan amount

£0

Monthly payment

£0

Length

0 months

Total monthly payments

£0

Total interest

£0

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How are debt consolidation loan payments calculated?

The payments for your debt consolidation loan are determined by taking into account the total amount of debt you intend to consolidate (the sum you want to borrow), the length of time you plan to borrow it, and the fees associated with borrowing this money. A lender will use the annual representative rate (APR) on this total to provide you with a consistent monthly payment throughout the course of your loan.

Can I repay early?

Absolutely! You do have the right to repay a personal loan before its due date or increase your monthly payments, as outlined by the Consumer Credit Act. However, it’s important to note that this could potentially result in an early repayment charge.

Does a debt consolidation loan affect my credit score?

Consolidating debt might lead to a brief decrease in your credit score, however, it has the potential to improve your rating going forward.

Securing approval for a loan may require a hard search, which leaves a trace on your credit report. This could potentially lower your credit score and remain visible to other lenders.

However, debt consolidation loans could eventually contribute to a better credit score, as having a single monthly payment can streamline the process, making it more manageable for you to consistently pay on time.

Other ways to relieve business debt

If consolidating or refinancing your current loans is not sufficient to help your business, there are other options to relieve business debts that you may wish to consider:

Equity finance: secure the cash you need by selling some of your business ownership to a new investor. This route may be particularly useful for SMEs that own unique technology or own valuable patents or copyrights, as these assets are highly attractive to new investors.
Business grants: unlike loans, business grants do not need to be paid back. Available from central government, councils, universities, non-profits and private sector groups, grants are usually provided to help businesses in specific UK regions, for a key reason, such as urban regeneration, or to help companies in innovative industries.
Restructure your business: sell business assets, close down under-performing business units, or merge with another company to spread your debt load.
Crowdfunding: Rise cash for your business via many small donations from a large number of people, typically by the internet. Funds raised are not a loan and do not need to be repaid as long as you use them for the purposes described in your presentation.

Find your options with Swoop

Consolidating or refinancing business debt can be complicated and may take longer than many businesses can wait. Don’t waste time going from lender to lender. Working with a broker who can quickly provide many different funding options is a better way to go. Register with Swoop to discover all your consolidation and refinancing options. Reshape your debts. Give your business a new lease of life.

Swoop requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

UK SME debt, https://www.ft.com/content/f7940fc4-9950-4f5e-998b-f5fb329d693

Business loans, https://swoopfunding.com/uk/business-loans/

Commercial mortgages, https://swoopfunding.com/uk/commercial-mortgages/

Asset finance and refinance, https://swoopfunding.com/business-loans/asset-finance/

Revolving credit facilities, https://swoopfunding.com/loans/revolving-credit-facility/

Business credit score, https://swoopfunding.com/uk/business-credit-scores/

Grants, https://swoopfunding.com/uk/business-grants/

Equity finance, https://swoopfunding.com/uk/equity-financing/

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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