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Can You Refinance a Small Business Loan?

Can You Refinance a Small Business Loan?; Is it possible to refinance a small business loan? Learn more about it from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated June 30, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If you took out a small business loan a while ago and now see that you could qualify for a loan at a lower rate, you may be curious about small business loan refinancing options. SBA loan rates are typically low, and if you could save money by refinancing with a Small Business Administration loan (SBA loan) or another business loan, you could put what you save back into your business.But can you refinance a small business loan? It may depend on the type of loan you have.

Can You Refinance an SBA Loan?

Let’s start the conversation with SBA loans, some of the most popular options for businesses seeking financing. It’s rare that you can refinance SBA loans. However, there are some instances where it may be allowed.Let’s say you have an SBA loan. If you have new financing needs that your current lender has declined or if your current lender won’t modify the terms of your SBA loan to accommodate a new loan, the SBA may permit a small business loan refinance.A good way to start is by talking to your SBA lender to find out whether or not you qualify for refinancing.However, it is possible to refinance an existing business loan (that’s not an SBA loan) with an SBA 7(a) loan if you qualify. We’ll talk more about what it takes to qualify shortly.

How Business Loan Refinancing Works

Next, let’s dive deeper into small business loan refinances so you understand how they work.If you currently have a business loan, you’re probably paying a set amount in interest. Let’s say you’re paying 6.5%. Maybe, out of curiosity, you checked around and found out that you now qualify for a loan at 4%. That could be simply because interest rates dropped. Or it could be because you can now qualify for lower rates, perhaps because your credit score rose.So why would you keep paying 6.5% when you know you could pay 4%? Many lenders permit loans to be used to refinance, which means that you could apply for that 4% loan and use it to pay off your old debt.Bear in mind, too, that you can refinance either with your existing lender or a new one.

When Should You Refinance?

There are a few situations in which refinancing makes sense. 
  • When you could pay less in interest by refinancing. That’s the situation in the example we discussed above, and in this case, refinancing may be a smart move.
  • If you want to either stretch out or shorten your loan repayment term. Maybe you can get a lower interest rate if you change your repayment period from five years to three. Or maybe your business has a lot of expenses right now and you’d benefit from lower monthly payments, so you’d like to extend your payment period with a small business loan refinance.
  • You want to consolidate other debts. You may have several different loans, all at different interest rates, and you might want to roll them up into one monthly payment and interest rate.

Pros and Cons of Refinancing

Small business loan refinances may have some advantages, but there are a few drawbacks you should be aware of as well.Let’s dig in a little deeper.

Pros

The biggest benefit of small business loan refinance is that you could save money. Why pay more than you need to in interest? The money you save can go back into building your business.If you’ve used up the money from your original loan but need a little more now, refinancing can help by providing more capital. If things have been slow in your business, that could be what you need to make it through to better times.

Cons

Some lenders may charge a penalty fee if you pay off the original loan early. And sometimes both the old lender and the new one charge transaction fees. You’ll have to do the math to see if these fees are still less than what you’ll save in interest.Just as with any loan, taking out a refinance loan may impact your credit scores.Ideally, you’d refinance only if the new rate were lower than your old one(s), but sometimes you might need to refinance, no matter what the rate. If you can’t get a lower rate, you may consider refinancing down the road, if you can.

What Types of Business Loans You Can Refinance?

We’ve talked about SBA loan refinance, but let’s look now at other types of loans you can refinance.

Commercial Auto Loan

If you use cars, trucks, or vans in your business, you’ve probably already taken out auto loans. If you’re paying more in interest for these than you’d like, you may qualify for auto loan refinancing. This may also be helpful if you have multiple car loans and would like to combine them. 

Term Loan

There are term loans for businesses with every type of credit. If you borrowed money when your credit score was lower than it is now, you may be paying a lot in interest. That’s particularly likely if you have a short-term loan, since these loans are known for having high interest rates. If you have a short-term loan and your credit has improved, you might consider refinancing it at a lower rate.

Equipment Loan

If your business uses heavy machinery or other equipment and you’ve financed it, you may have built equity that you can use to refinance the equipment loan. 

Commercial Real Estate Loan

The same goes for real estate loans. If you’ve built equity through your property, you may be able to leverage it with a small business loan refinance.

How to Qualify for Refinancing

Let’s return to SBA loans as these are more demanding than typical loans in some ways. If you want to refinance small business loans with a 7(a) loan, there are some requirements.The purpose of your original loan should have been SBA eligible, and you must provide a written explanation as to why your current loan doesn’t offer reasonable terms. These reasons might include:
  • A demand or balloon maturity feature
  • The existing debt is on a credit card
  • The interest rate is higher than the SBA’s maximum
  • The loan is over-collateralized
If you’re planning on refinancing with a non-SBA loan, then the qualifications will likely be similar to those you met when you took out your original loan.

How to Refinance a Small Business Loan

Refinancing a small business loan is probably quite similar to the application process you went through for the original loan. 
  • First, figure out how much money you’re talking about. Determine how much you owe on your existing loan(s) and whether you want any additional capital added to that number.
  • Next, it’s a good idea to check your credit score. That way you’ll have a sense of what kinds of rates you’ll qualify for. 
  • Shop around. Understanding the variety of loans available will help you be sure that the rate of the loan you apply for is competitive.
  • Prepare your information. In the application process, you will be asked questions about your business, how long it’s been in operation, and what its annual revenues are. You may be asked to provide financial or tax documents as well.
Once you’re approved for your refinancing loan, you can take those loan funds and pay off your old loan(s). 

The Takeaway

Small business loan refinance can often help you save money that you can put back into your business. But it’s important to do your due diligence and make sure that it makes sense for your situation.Ready to refi? You can use Lantern Credit to access small business loans for every occasion and every credit situation. Fill out the application and compare offers from multiple lenders in our network.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0621102

Frequently Asked Questions

How does small business loan refinancing work?
What kinds of business loans can you refinance?
Is refinancing right for me?

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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