Refinancing a Business Loan: What to Know Before Sealing the Deal

Saroj Shah
December 8, 2022

Business loans can offer support for expanding your business and growing your profits. However, as your business evolves, you may want to explore new loan terms that fit your situation better than an older arrangement. Often, business owners opt for quick business loans to manage urgent expenditures. Later, when the business circumstances change, they want to switch to different loan contracts to reflect their new positions. Business loan refinancing can often help you achieve these changes! Let’s analyse how business loan refinancing works and what you need to know.


Business Loan Refinancing: What It Means

Refinancing involves getting a new debt facility to pay off your current business loan. This process allows you to transition into a more favourable loan arrangement. After servicing your existing debt for some time, you can explore new loan contracts with your current lender or a new one.


Advantages of Refinancing Your Business Loan

Refinancing, when pursued in the correct context, can help you unlock excellent business benefits. Here are some benefits that you can leverage by refinancing your loan.

  • Additional Funds: As your business grows, you may need more money to fuel the growth. Refinancing may open up new options to borrow more funds with favourable loan terms. As a result, you can optimise your cash flow and spend on crucial business investments.
  • Lower Interest Rates: When your business circumstances improve, lenders may be willing to review your interest rates. If you have a good repayment record and high-performing business metrics, you can get a lower interest rate with refinancing.
  • Consolidation of Debt: Sometimes, business owners take multiple loans. A refinancing facility can help you simplify and consolidate them under a single contract.
  • Additional Facilities: Refinancing a loan allows you to explore new terms in your loan contract. You can try to get additional facilities like the redraw facility or an option to pay back your loan within a different time frame.
  • Freeing Your Assets: Secured business loans require collateral submission. For example, in asset finance solutions, the underlying asset serves as the security. However, once you repay a substantial portion of your secured loan, you may be eligible for an unsecured loan that frees up your assets. This option can allow you to sell or change your assets according to your business needs without worrying about the loan terms.


Questions To Ask Before Refinancing Your Business Loan

Even though refinancing offers many benefits, it is crucial to analyse this choice carefully before finalising a new agreement. These two questions can help you make an informed choice.


1. How does my business benefit from loan refinancing?

Every business scenario is unique and the benefits you get from refinancing will depend on your situation. Your business loan may need refinancing if your business has changed considerably since you got your loan. If the size, scale, or income has grown significantly, it makes sense to look for refinancing options.

Moreover, you may need refinancing options if your current debt arrangements are too complicated. Debt consolidation can benefit your business by freeing up resources and streamlining your loan management. Finally, if you get lower rates and better value, you can consider refinancing.


2. Do the costs of refinancing outweigh the potential benefits?

Refinancing often involves substantial costs in the form of fees. These include application charges, discharge fees, valuation and settlement fees. You may also need to pay break costs if you transition from a fixed-rate loan before the stipulated period. Analyse all these costs and evaluate how they stack up against the benefits.

You can connect with an expert broker from Broc Finance to assess your options and learn more!

Saroj Shah

Saroj is the Head of Lending at Broc Finance. He comes with 13+ years of experience in small business lending and has a knack of structuring complex deals and get the best outcome for his customers.