Business loans can come in all different shapes and sizes, depending on what your business needs. If you require multiple loans for different things, it can sometimes feel overwhelming trying to keep them all in line and pay off as necessary.
Refinance Business Loan
The good news is that there are many different ways to refinance your debts. This helps you to keep track of them, as well as make them smaller and simpler to pay off. Refinancing is designed to help your business thrive financially, so that you can focus on growing and developing your company.
What does refinance business loan mean?
Almost all businesses have debts in some form or another, but these do not need to be unchangeable. You can always try and find ways to make the debt more manageable for you and your business, so that the loans remain an asset and not a burden.
This will look different for different companies – it may mean lower interest rates, smaller payouts across a longer loan term, or even combining multiple loans into one so that all of them can be dealt with through a single transaction each pay period. All of these actions are forms of refinancing. The overall aim is to improve the circumstances of your debt, according to your needs.
How does it work?
If you are interested in refinancing some or all of your business loans, the first step is to do your research. Understand exactly what issues you are having with your current debt. It may be that you have many smaller loans, and it would be more efficient to condense them into a single loan with a single regular payment. You may have a fixed interest rate, but you are seeing loans advertised for a much lower interest rate. Alternatively, you may have no fixed interest rate and it has now become relatively high compared to alternatives on the market. Once you understand your issues, you can begin to look for a refinancing solution that targets your specific needs. This helps you to navigate the vast range of options that are available.
Different lenders offer different terms of service, so you also need to find options that are better than the ones that you currently have. Once you have located the ideal loan refinancing option, you then need to apply for it. Most lenders will require the following:
- Credit scores
- Business plan (and how you plan to use the refinancing to increase your revenue)
- Bank statements from the previous 6 months (or maybe a year, depending on the lender)
- Proof of your time in business (most lenders will only offer services to businesses older than 3 months
- Collateral (if the loan is secured)
- Information on any other debts that you have (if they are not part of your refinancing plan)
If you are successful and you obtain a favorable loan, you then use that sum to immediately pay off all of your existing loans (or the ones that you want to refinance. This removes you from the contract with the previous lender, so you are no longer subject to the unfavorable debt terms. The debt has not gotten any bigger or smaller just yet, it has simply moved to be owed to the new lender.
Refinancing vs Consolidation
Another term that gets used a lot when discussing how to manage loans is “consolidation”. But what does it mean, and is it the same thing?
If you have multiple different loans and debts, consolidation combines them into a single debt that you pay off, with a single interest rate with fixed fees and payments. Straight away this is easier to understand, and therefore people find it easier to manage (compared to trying to straighten out multiple different payments at different rates).
This is not always going to be the right option for everyone. You should only consolidate your debts if the consolidation terms you are being offered are better than your existing loan terms (e.g. the single, combined loan you will take on should have a longer repayment term, lower interest rates, and lower fees). Otherwise, you end up paying more money simply for convenience.
Refinancing is an umbrella term. It simply means taking the existing debt that you have, and working with it to replace it with better conditions (repayment terms and interest rates). There are multiple different ways that you can go about achieving this outcome – debt consolidation is only one of them. It is most commonly used when people seek a new loan with better terms than their existing one – they then pay off the original loan with the new one, so they have shifted the debt into a better situation. With debt financing, you do not need to have multiple debts. You can secure better terms for a single debt or multiple debts, while keeping them all separate if you need.
Is debt refinancing the right option for your business?
When trying to organize your debts, there are a number of factors you should consider when determining if refinancing is a good option. Overall, it can help a lot of businesses, as already identified. But it can be a time-consuming process, and there are always up-front fees. Part of your research and consideration process should include these factors – if you still end up paying less in the long run for more favorable debt conditions, it might be the right choice for you.
It’s also important to note that debt refinancing can have a negative impact on your credit score. This is often minimal and temporary, as it has long term positive effects. Smaller repayments can help to improve your score again, which can also help your chances of obtaining future loans.
What are the eligibility criteria for refinancing your debts?
Refinancing your debts almost always occurs by taking out a new loan, so your eligibility would be measured against the loan criteria. Each lender will have slightly different criteria and thresholds, so it’s important to know who you are eligible to borrow from. Refinancing can be done in a number of different ways, and each loan type will also have its own unique requirements and thresholds that you need to meet in order to access.
It’s important to understand the capacity for your existing debts to be refinanced as well. Some loans come with an early payment penalty. If you pay off the loan before the intended date as noted in the contract, the lender may issue you a fine. By paying off the loan early, the lender loses money from interest they can no longer collect, so they may seek alternative ways to boost their own investment.
Benefits of Refinance Business Loan
Lower interest rates
Overall, the point of refinance business loan is to create a more favorable position for yourself. This may include finding a loan that offers lower interest rates than the one that you are currently paying off. Some loans have fixed interest rates while others can fluctuate – if you find that you are no longer paying some of the best terms in the market, you may want to switch.
Longer repayment terms
If you have a longer repayment term, this can mean that you are paying more interest overall. However, it also means that you are paying less for each payment, so you have more cash to spend on business needs. It’s important to understand your own specific situation – it may be more beneficial to you to pay off the loan as soon as possible, or it may be more important to cut your payments slightly each payment period, and use that extra money on your business.
It can help you to borrow more
By refinancing your business debt, you may be able to pay off smaller loans faster, giving you greater borrowing opportunities for the future.
“Refinancing” is a broad term, and this means that there are a number of different ways to achieve it. Each of these comes with its own unique benefits and allows you to find a solution that works best for your business, its financial situation, and your preference for repayments moving forward.
Disadvantages of Refinance Business Loan
It may not be suitable for all of your business loans
Refinancing involves replacing an existing loan or debt with a new one that has better terms. However, some loans have “prepayment penalties” – you have to pay more if you pay it off earlier than the agreed-upon schedule. Early payoffs mean that the lender loses some or all of the interest payments they would have made from that loan, so it’s understandable why they may want to avoid that situation. The prepayment penalties would likely cost you more than you would save in interest. Also, they can hurt your credit score, making it harder to access loans in the future.
It doesn’t necessarily address the financial problems your business is facing
If you are refinancing your loans, it’s possible that you are in a comfortable financial position, you just want to make things easier for your business. But for many people, turn to loan refinancing when they are struggling with their existing circumstances and need help. Refinance business loan can certainly provide the breathing room that you need, but it does not address the wider issues you may be having financially (you are spending more money than you are making).
Let Booster Financial help you refinance some or all of your existing business loans
Booster Financial has been supporting businesses like yours to become financially healthy, by helping them to better manage their debt. Our experienced team of advisors works with clients one on one to understand their needs, and then offer solutions that are exactly what they are looking for. We offer a wide range of financial support and options, ensuring there is something for everyone. We also aim to educate all of our clients, helping them to make an informed choice that will genuinely work for them, not against them.
Booster Financial works alongside businesses in a range of different industries, and a range of different financial sizes. We understand that financial goals are unique and each company has its own specific way of working, which our financial support needs to fit into. We are dedicated to providing high quality financial services that clients can trust and rely on.
What is refinancing?
Refinancing is when you take existing loans or debt, and convert it into a new loan that has more ideal terms. The goal is to make your debt more manageable, and reduce the amount of interest in the long run.
How do I refinance business loans?
In order to refinance your business loans, you need to search for a new loan with more favorable terms that will cover the sum of the existing debt that you want to refinance. Once you have secured this, you use the funds to pay off the original lenders. Now you still owe money to the new lender, but as time progresses you will be paying less due to lower interest rates. You may also secure a longer loan term, which reduces the size of the payments you make.
Can I refinance different types of loans?
Yes, there are refinancing options available for almost all loan types. Not all lenders will offer comprehensive refinancing options for all loan types, so it’s important to research according to your needs. Booster Financial offers refinancing on a wide range of loan types, so that you have the flexibility to find exactly what you need.
Can all loans be refinanced?
No, not all loans can be refinanced. Some will have an early payment penalty – if you pay them off sooner than the agreed-upon loan term, you may be fined. You may work out that refinancing and paying the fine is still cheaper than staying with the original loan, but always do thorough research.
Is refinancing the same as consolidation?
Consolidating debts is a form of refinancing, as the end goal is to create more ideal financial outcomes for your business. Refinancing is an umbrella term that encompasses any action that may achieve this outcome.
Does refinance business loan impact my credit score?
Yes, refinancing loans can have an initial negative impact on your credit score. This is generally very small, and is offset by the gains you may make through creating better repayments and lowering your debts faster. Overall it should not significantly impact your credit score in a negative way.
Can Booster Financial help my business refinance its debt?
Yes, we can. Simply get in touch with one of our team today, and we can begin discussing your options with you. We have a range of different refinancing options that are flexible, so they meet the needs of all of our clients.
How long does it take to get refinancing approved?
Different lenders will have different timeframes for processing and approving your application. Booster Financial can have your refinancing processed and ready to go in as little as 48 hours.
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