Refinancing a Small Business Loan: Complete Guide
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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
Business Debt Refinancing vs. Debt Consolidation
When Is a Good Time to Refinance a Business Loan?
You improved your credit score Your business had an increase in revenue You have significant business history You want to pay off an expensive short-term business loan Refinancing a business loan could save you money
What Is Business Loan Refinancing?
Secure a better interest rate/APR Improve loan terms (for example, to have less frequent payments) Refinanced business loan terms can vary depending on the original purpose of the loan. For example, refinancing equipment loans may result in a shorter term if the equipment’s “lifespan” has shortened from years of use. Lower monthly payments by extending your loan term
Pros and Cons of Refinancing a Business Loan
Lower monthly payments Better monthly cash flow due to lower payments Can help prepare for growth–with more debt paid off, you can put attention on expanding your business rather than just trying to break even Shortened loan terms can help pay off debt more quickly A hard credit pull (required as part of the application process) can impact credit score for the short-term, which may not be favorable if you already have a lower credit score Potential prepayment penalties when paying off the original loan. Check with your lender to see if there are penalties before refinancing a business loan May need collateral to secure the business loan refinance. You can use personal or business assets, but must consider whether you’re willing to lose those assets in the event that you default on the loan Longer loan terms can mean more interest paid over the life of the loan
Business Loan Refinancing Options
May offer lower interest rates May offer higher loan/refinancing amounts May offer better long-term loan solutions than alternatives lenders Good for borrowers with strong credit rating/history Processing may take longer than other types of business loans
May offer faster approval and financing Typically have fewer or lower qualification requirements May have higher interest rates depending on creditworthiness May be a good option for borrowers who don’t qualify for bank or SBA loans May offer unsecured business loans, which don’t require collateral
Purpose of the original loan would have been SBA-eligible The business loan needs to offer the borrower a “substantial benefit” with the payment amount coming out to at least 10% less than the borrower’s current loan. Borrower needs to provide written justification explaining why the current loan isn’t on “reasonable terms” Borrowers can refinance debt from the same financial institution but have to document a 36-month payment history without unjustified past dues Generally, borrowers cannot refinance an SBA loan with another SBA loan, but may be considered under certain circumstances
Steps for Refinancing Business Loans
1. Set your refinancing goal
Do you want lower monthly payments? Do you want a shorter loan term? Do you want to consolidate debts?
2. Calculate how much you owe
Current loan balance How much time is left in loan term Payment schedule Payment amount Current interest rate
3. Examine your business financials and gather documents
Annual revenue Personal and business credit scores Profit and loss statements Bank statements Tax returns
4. Compare lenders
Loan terms Interest rates Additional fees (origination, pre-payment penalty, etc.) Types of loans they refinance and how they may affect your loan Collateral requirements Loan amounts
5. Determine what you qualify for
6. Apply for business loan refinance
See How Lantern by SoFi Can Help Refinance a Business Loan
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