Business Loan Refinancing Explained

Q: Can you refinance a business loan?

Yes. You may be able to lower your borrowing costs by getting a new loan and using it to pay off your existing business loan.

Q: How does refinancing business loans work?

To refinance a business loan, you apply for a new loan (either with the same or a different lender) that, ideally, has lower rates or better terms, and use it to pay off your existing loan.

Q: Can you refinance a business's debts with an SBA loan?

You may be able to use a Small Business Administration (SBA) loan to refinance a business loan but you’ll have to meet specific eligibility criteria regarding your use of the loan, available collateral, and the existing loan’s interest rate.

Refinancing a Small Business Loan: Complete Guide

Julia CalifanoUpdated February 3, 2023

Share this article:

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.

Just like mortgages and car loans, small business loans can often be refinanced. Is it a good idea? It can be. Refinancing a business loan can allow you to secure a lower interest rate or loan terms that better align with your company’s financial goals. But there are costs and other considerations to keep in mind. Read on to learn more about refinancing business debt, including:

What refinancing a business loan means
The pros and cons of refinancing a business loan
Loan options for refinancing
Steps to apply for business loan refinancing

What Is Business Loan Refinancing?

Business loan refinancing involves applying for a new small business loan, either with the same lender or a different one. You go through the same application as any business loan, and, once approved, you get a loan that pays off the original business loan. Generally, the goal of refinancing is to secure a new small business loan that has better rates and/or terms, such as:

A lower annual percentage rate (APR)
Lower monthly payments
A longer or shorter repayment period

Whether or not a lender will offer you a loan refinance typically depends on your qualifications (such as your time in business, revenues, and credit score), as well as the how much you have paid off, and how much you have to go, on your first loan.

Pros and Cons of Refinancing a Business Loan

As with any type of small business financing, there are benefits and drawbacks to refinancing a small business loan. Here’s a look at how they stack up.

Pros

Lower loan costs A lower APR or a shorter loan term can reduce the total cost of the loan.

Improve cash flow Lower payments can mean more cash is available to cover operating costs, invest in new equipment, or hire more employees.

Pay off your loan sooner If you refinance with a loan that has a shorter term, you’ll be able to pay off your debt faster.

Get a larger loan If the new lender approves you for a larger loan amount, you could use the capital to help grow your business and potentially avoid having to take out a second loan down the line.

Cons

Could negatively impact credit The new lender will need to make a hard credit pull before approving you for a loan, which can slightly lower your score in the short term.

Longer loan terms can lead to higher costs While a longer term lowers monthly payments, you can end up paying more in interest over the life of the loan.

Might have to pay a prepayment penalty Some lenders charge a penalty fee if you pay off your loan early. Check with your current lender to see if there is a fee and how much it would be. You’ll want to be sure any prepayment penalty doesn’t offset the savings you’d get with the new loan.

May need to pledge collateral Even if your first lender didn’t require collateral, the new lender might require you to pledge an asset (such as cash, equipment, or inventory) to secure the loan. While collateral can help lower your interest rate, you could lose the asset if you run into difficulty repaying the loan.

Types of Business Loans Which Can Be Refinanced

Here’s a look at the different types of business loans that can often be refinanced.

Business Lines of Credit

With a business line of credit, you’re able to borrow what you need (up to an approved limit) when you need it, and only pay interest on what you borrow. Once you repay the funds, they are available to borrow again. A business line of credit can be secured (requiring collateral) or unsecured (no collateral required).

Equipment Loans

Equipment loans provide the funds you need to purchase equipment or machinery for your business. The equipment typically serves as collateral for the loan, making the loan relatively low risk for the lender (they can repossess and resell the equipment should you default on your payments). As a result, equipment loans often come with attractive rates and terms.

Business Credit Card Debt

Though not a traditional loan, business credit cards are one of the most common forms of small business financing. If you’ve racked up expensive credit card debt, you may be able to refinance it with a balance transfer card that has a lower rate, or take a business loan with a lower rate to pay off the balance.

Short-Term Business Loans

Short-term business loans typically provide quick access to a lump sum of cash you then repay in installments (which could be daily or weekly) over a period of three to 18 months. They can be useful for temporary gaps in cash flow and emergency expenses.

Working Capital Loans

A working capital loan is a kind of short-term financing that can be used to cover a company’s day-to-day operating costs and to help level out cash flow. These loans can come in several forms, including term loans, lines of credit, and Small Business Administration (SBA) loans.

SBA Loans

SBA loans are partially guaranteed by the government and offered through various banks and other lenders. Refinancing an SBA small loan isn’t always easy, however. Generally, you can only refinance an SBA loan if you have a new financing need and your current SBA lender has refused to increase or modify your loan. You may, however, be able to refinance an SBA loan with a non-SBA loan.

Business Loan Refinancing Options

If you’re thinking about refinancing a business loan, you generally have three different types of lenders to choose from.

Banks

Traditional banks typically offer the lowest interest rates and most attractive terms. However, they also tend to have the strictest qualification requirements and are generally slow to fund.

Alternative Lenders

Alternative lenders, also known as online lenders, are non-bank entities that can provide fast financing (often in a day or two) and typically have more flexible eligibility requirements than banks. Online loans tend to have higher interest rates than other options, however, so you’ll want to make sure that refinancing with one of these lenders will help cut your borrowing costs.

SBA Lenders

SBA loans typically offer competitive rates and terms and can be easier to qualify for than bank loans, since they are partially guaranteed by the Small Business Administration. However, you’ll still need to meet strict criteria to refinance with an SBA loan. These loans are also typically slow to fund.

6 Steps to Refinancing Business Loans

If you’re looking to refinance an existing small business loan, here’s a simple step-by-step guide.

1. Set Your Refinancing Goal

Before you start researching your refinancing options, it’s a good idea to consider why you want to refinance. This can help streamline your search process.Some questions to consider:

Do you want to lower your monthly payments?
Do you want a shorter loan term?
Do you want to lower the total cost of your loan?

You may also want to think about your long-term business financial goals and how a refinance could affect those goals positively or negatively.

2. Calculate How Much You Owe

To find a refinance that has better rates or terms than your existing loan, you’ll want to have all these facts and figures at your fingertips:

Current loan balance
How much time is left on loan term
Payment schedule
Payment amount
Current APY

You’ll also want to determine if your existing lender has prepayment penalties — and if so, how the cost of those penalties could impact your refinance.

3. Examine Your Business Financials and Documents

Before you begin looking at loan options, you’ll want to assess your qualifications. Lenders are typically interested in your:

Credit score (both business and personal)
Time in business
Annual revenue
Availability of collateral

Lenders may also want to review your company’s key financial documents, such as your income statement, balance sheet, and recent tax returns, so it’s a good idea to start gathering your documents. If certain aspects of your financial position — such as your business revenue or credit score — have improved since you applied for your initial loan, these are things you may want to point out when you apply for a refinance.

4. Compare Lenders

When you’re refinancing a business loan, you may have the option to apply for a refinance loan from your current lender or from a new lender. When comparing lenders and loan options, you’ll want to look at:

APYs (this takes fees into account and enables you to compare loans apples to apples)
Loan amounts
Loan terms
Qualification requirements
Collateral requirements

5. Determine What You Qualify For

Once you’ve set your goals, assessed your financials, and researched your loan options, you’ll want to determine which loan you are most likely to qualify for. When you apply for a loan, the lender will conduct a hard credit pull, so you want to make sure you’re confident about your eligibility to avoid multiple applications. Some lenders and online lending tools allow you to prequalify for a loan, which only involves a soft credit pull that won’t impact your credit. This can help you compare offers and hone in on the best option.

6. Apply for Business Loan Refinancing

Once you’ve determined the best refinancing option for your needs, you’ll want to gather any documents you need, then complete and submit your business loan application.

Lenders Who Offer Business Loan Refinance

Curious about lenders who offer business loan refinance? This sampling of lenders came from the Google search query “best business loan refinance lenders.”

Lender	APY	Time in Business Required	Credit Score Required	Loan Amount
Fast Capital 360	Starting at 7%	1 year	540+	Up to $500,000
Connect2Capital	Varies by lender	Not specified	Varies by loan type	$500 to $5 million
First Bank SBA	Capped at Prime +2.75%	2 years	Not published	Up to $5 Million
GUD Capital	Varies by loan type	Varies by loan type	500-650	$5,000 to $20 million+
Funding Circle	Not published	2 years	660	$25,000 to $500,000

All information was accurate as of 1/30/2023.

When Is a Good Time to Refinance a Business Loan?

If you've been in business for a while and have high-interest loans from your early years, it could be a good time to refinance. But it’s not something you want to blindly rush into. To help determine if the timing is right, here are some questions you may want to consider.

Will It Save You Money?

If you can find a loan that has a lower APR or a shorter term, it can lower the overall cost of the loan to your business, even if the monthly payment doesn’t necessarily go down. Just be sure to factor in any prepayment fee from your current lender, to ensure refinancing will, in fact, lower your borrowing costs.

Has Your Credit Score Improved?

If you got your original loan when your business was new and had yet to establish credit, you may have gotten saddled with a high interest rate. If you’ve established a strong business credit profile since then, it may be worth applying for a refinance.

Has Your Business Grown?

Lenders typically look at more than a company’s credit score to determine a loan’s amounts, rates, and terms. They generally consider a number of factors, including a company’s business plan, time in business, revenues, cash flow, and available collateral. If your business has grown significantly since you applied for your original loan, it could be a good time to explore refinancing.

Business Debt Refinancing vs. Debt Consolidation

It’s not uncommon for people to use these terms interchangeably, but there is a difference between refinancing and consolidating your debt.Debt consolidation is the process of combining multiple loans into one. You use the new loan to cover your existing debt, so instead of making multiple payments, you now only pay one lender and follow one repayment schedule. While loan consolidation might save you money, that generally isn’t the primary goal. The main goal is to simplify your payments and make your debt easier to manage. Of course, it’s ideal if the new loan has a lower APR. That way, loan consolidation can also save your business money.Business debt refinancing, on the other hand, is the process of taking out a new loan (generally with better rates or terms) to pay off one original loan.

See How Lantern by SoFi Can Help Refinance a Business Loan

If you’re interested in exploring your business loan refinancing options, Lantern by SoFi can help. With our online lending platform, it’s quick and easy to access offers from top business lenders matched to your company’s needs and qualifications. You only need to fill out one short application and you don’t need to make any kind of commitment.

Frequently Asked Questions

Can you refinance a business loan?

How does refinancing business loans work?

Can you refinance a business's debts with an SBA loan?

LCSB0822019

About the Author

Julia Califano

Julia Califano is an award-winning journalist who covers small business, personal loans, credit cards, and other financial topics for Lantern. She has over 20 years of experience writing and editing articles on personal finance and other consumer topics for major print and digital outlets, including DailyWorth, Good Housekeeping, Glamour, Self, the Slingshot Fund, Harper’s Bazaar, and Fordham Lawyer Magazine. She has also served as an editor at Time Inc., Conde Nast, and Hearst.

Share this article: