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Business Loan Refinancing: The Definitive Guide

Percentage of business loans used to refinance debt (Source: Federal Reserve)

Are you overpaying for your business loan? If so, business loan refinancing could cut your costs, improve your cash flow, or simplify your loan management. And with online lending, it’s easier than ever to find out.

In this definitive guide to business loan refinancing, you’ll learn everything you need to know to ensure you are getting the best deal.

How business loan refinancing works

When you refinance your business loan, you take out a new loan — ideally with lower rates and better terms — and use it to repay the old one. Afterward, you make payments according to the new loan agreement until the new loan is paid in full.

You can refinance your loan with your current lender or with an entirely new lender. Further, you may refinance one loan or consolidate multiple loans into one.

When should you refinance your business loan?

Is refinancing the right solution for your business?

It depends on your situation. Here are several situations where business loan refinancing makes sense.

  • You are likely to qualify for better rates and terms if your annual revenue, business age, or personal credit score has increased since your loan was originated.
  • If market rates have improved and you can reduce your annual percentage rate (APR), total cost, or both of your loan, refinancing is beneficial.
  • If your payments are too expensive and you need to free up some cash flow, refinancing may enable you to restructure your repayment plan.
  • Managing multiple loans can be confusing. If you have multiple loan accounts, refinancing can give you the opportunity to consolidate them all into one.

Next, let’s look at the situations in which refinancing might not work out so well.

When shouldn’t you refinance your business loan?

While refinancing business loans can help in many situations, there are times when it’s not ideal. These include:

  • When your current loans have prepayment penalties which negate any savings you would gain from refinancing.
  • If you can’t get rates and terms that will help you save monthly or overall, you will be better with your current loan.
  • If you can’t qualify for refinancing, you should work on your annual revenue and personal credit so you can qualify in the future.

In order to find out if refinancing will benefit you, you’ll have to do some research. Next, we will discuss how to find out what you qualify for, and how to figure out which offers are worth taking.

How to refinance a business loan

Interested in refinancing your business loan? Here’s what to do.

1. Analyze your current situation

First, review your current business loan(s) and business profile so you can figure out exactly where you currently stand. This will also help you prepare to apply with new lenders.

For your business loan(s), take note of the following:

  • Outstanding balance(s).
  • Annual percentage rate(s) (APR).
  • Monthly payment amount(s).
  • The total cost of capital.
  • Payment schedule(s).
  • Satisfaction level with the current lender(s).
  • Prepayment penalties.
  • Remaining repayment term.

As for your business profile, most lenders will look at the following when analyzing your creditworthiness:

  • Personal credit score.
  • Amount of annual revenue.
  • Age of the business.
  • Amount of debt.
  • Business credit score.

Gather documentation which shows this information. Also, check your credit reports (both business and personal) to verify that everything is accurate. If you find any discrepancies, correct them before applying with any lenders, as they may negatively impact your results.

With all of this information prepared, you’re ready to shop for a new loan.

2. Shop around for a new loan

Next, begin your hunt for a new loan. But where can you find lenders that will refinance business loans? You can browse lenders of business loans here and compare the available loan amounts, APRs, loan terms, and fees side-by-side.

Further, if you want to get competing offers from multiple lenders, you can use SuperMoney’s business loan engine. It asks you a few questions then communicates with the lenders and returns any offers for which you qualify. The process takes about five minutes and won’t hurt your credit score.

SBA loan considerations

While shopping around, you should consider whether an SBA loan might be the right fit for your business. The U.S. Small Business Administration’s (SBA) 7(a) and 504 loan programs allow businesses to refinance qualifying business debts.

The main benefits of an SBA loan are that the borrowing costs are usually lower than non-SBA loans, and the repayment periods are more lengthy. The main drawback is that the many requirements of SBA loans result in a long and tedious application process. If interested, you can apply for an SBA loan online through SmartBiz.

3. Compare the best offers

Once you have shopped around and received prequalification offers from lenders, it’s time to compare them against each other to find the best one. Check all of the details on each loan, including the:

  • Repayment terms.
  • APRs.
  • Loan amounts.
  • Fees.
  • Total cost.
  • Customer service ratings.

Be sure to research each company online to find out if they have a good reputation. SuperMoney provides review pages with real feedback from past customers.

4. Calculate your savings

Now it’s time to do the math. How much will the new loan save you? It is important to understand your monthly savings as well as your total savings.

A common tactic for lenders is to extend your loan term so that the monthly payments are affordable and attractive. However, longer loan terms also mean paying more in interest over the lifetime of the loan.

So be sure to look at the whole picture when comparing your savings — both monthly cost and total cost overall. And don’t forget to factor in any applicable fees!

5. Refinance your business loan

If a new loan can provide you with savings and/or benefits which justify the refinance process, then it makes sense to go ahead. You’ll need to agree to the terms of the new loan, provide any requested documentation, and ensure that the old loan is paid off. Afterward, you will make payments to the new lender until the loan is repaid in full.

Frequently asked questions about business loan refinancing

Can you refinance a business loan?

Yes, most business loans can be refinanced (excluding SBA loans). However, specific eligibility requirements vary by lender. Further, if you would like to refinance non-SBA loans into an SBA loan, there are many restrictions. Check with your potential lender for details.

Can I refinance my SBA 7(a) loan?

The SBA does not generally refinance SBA 7(a) loans. However, it will make exceptions under certain circumstances. For example, if you’ve been denied additional funding by your existing lender, or if your lender refuses to modify the terms of the existing SBA loan in order to accommodate a new loan, the SBA may allow you to refinance.

Can you consolidate business debt?

Yes, many lenders will approve qualified borrowers for a loan amount large enough to pay off multiple debts. However, it depends on the lender and your creditworthiness. View and compare business loan lenders here.

Why do companies refinance?

Companies refinance their debt when they stand to gain some benefit from the new loan. The most common benefits include reduced cost, lower monthly payments, and consolidated debt.

Find the best deal on your business loan refinancing

Ready to see if business loan refinancing is the right move for you? Find out if you qualify for a better deal today. If you do, you can save on your borrowing costs and/or update your loan terms to better match your needs. If you don’t, you can take note of where you currently stand and work on your creditworthiness for the future.

See if you qualify!