As a business owner, your financial needs and circumstances are constantly evolving, so a business loan that worked perfectly when you started may no longer align with your goals today.
That’s where refinancing comes in. By replacing your existing loan with a new one, refinancing can help reduce costs, improve cash flow, or provide access to better terms. But how do you know if it’s the right time to refinance?
What does refinancing a business loan involve?
Refinancing involves paying off your existing business loan with funds from a new loan. The new loan may come from the same lender or a different one and ideally offers improved terms, such as a lower interest rate, a longer repayment period, or more flexible features.
Signs it’s time to refinance
1. Interest rates have dropped
If market interest rates have fallen since you took out your loan, refinancing could lower your monthly repayments and reduce your overall cost of borrowing.
2. Your business credit has improved
A better credit score or stronger financial position may qualify you for a loan with more favourable terms, including reduced interest rates or fewer fees.
3. You’re struggling with cash flow
If your repayments are putting too much strain on your cash flow, refinancing to extend the loan term can lower your monthly obligations.
4. You need additional funds
When your business is ready to grow, refinancing can allow you to consolidate existing debt and borrow extra funds to support expansion, purchase equipment, or hire more staff.
5. Your current loan is too restrictive
If your current loan comes with penalties for early repayment, limited redraw options, or other inflexible terms, refinancing can provide a better-suited product.
6. You want to consolidate debt
Managing multiple loans can be overwhelming. Refinancing lets you combine your debts into one loan with a single repayment schedule, potentially saving on fees and interest.
The pros and cons of refinancing
Pros:
- Lower interest rates and monthly repayments
- Access to additional funding
- Improved cash flow management
- Potential savings on fees
Cons:
- Upfront costs, such as application or break fees
- Risk of extending debt repayment over a longer term
- Time and effort are required to compare loan options and apply
How to refinance your business loan
1. Review your current loan terms
Understand your current interest rate, repayment schedule, fees, and restrictions.
2. Assess your needs
Determine why you want to refinance—whether it’s to save money, access more funds, or gain flexibility.
3. Shop around
Compare loan options from different lenders, considering not just the interest rate but also fees, features, and repayment terms. This step can be exhausting, especially when running your own business. A business broker will have all the right connections to help find you the best fit.
4. Prepare your application
Gather the necessary documentation, including financial statements, tax returns, and details of your existing loan.
Let us help you navigate refinancing
Refinancing can be a smart move for many businesses, but it’s important to weigh the benefits against the costs. As experienced finance brokers, we can help you assess your options, negotiate with lenders, and make the refinancing process as seamless as possible.
* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
