Business Loan Refinancing Explained
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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
What Is Business Loan Refinancing?
A lower annual percentage rate (APR) Lower monthly payments A longer or shorter repayment period
Pros and Cons of Refinancing a Business Loan
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.
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
Business Lines of Credit
Business Credit Card Debt
Short-Term Business Loans
Working Capital Loans
Business Loan Refinancing Options
6 Steps to Refinancing Business Loans
1. Set Your Refinancing Goal
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?
2. Calculate How Much You Owe
Current loan balance How much time is left on loan term Payment schedule Payment amount Current APY
3. Examine Your Business Financials and Documents
Credit score (both business and personal) Time in business Annual revenue Availability of collateral
4. Compare Lenders
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
6. Apply for Business Loan Refinancing
Lenders Who Offer Business Loan Refinance
When Is a Good Time to Refinance a Business Loan?
Will It Save You Money?
Has Your Credit Score Improved?
Has Your Business Grown?
Business Debt Refinancing vs. Debt Consolidation
See How Lantern by SoFi Can Help Refinance a Business Loan
Frequently Asked Questions
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