21 Dec 2022
Managing finances – including any debt obligations – is one of the keys to business success. But in times of trading uncertainty, debt can become a drain on cash. Fortunately, refinancing or consolidating your business loans can help alleviate some of the pressure by making your repayments more manageable. Here’s how.
How long was it since you took out your initial business loan?
It might be that you’re eligible for a broader variety of business finance products now compared to back then. Perhaps you’ve had time to build a good credit rating, or maybe you’ve accumulated assets that you could use as security for a loan.
If this is indeed the case, you might be able to get a business loan on a more favourable rate or more competitive terms.
Refinancing refers to the process of paying off an existing loan with a new one, with a view to reducing monthly repayments or interest, or making repayments easier to manage.
If you refinance your existing debt to a loan with a longer repayment term, for instance, you can cut the amount you repay each month, leaving you with more cash ready cash.
Similarly, if the new loan you opt for has a longer term and a larger principal (the sum you borrow), you could continue to pay the same each month but borrow more cash.
It might even be possible to refinance your business loan to one that has a lower interest rate. If it has the same term length as your current loan, you’ll pay less each month and save on the overall cost of the finance.
You may also be able to switch the way you repay the finance to a more suitable option for your needs. While term loans require regular set repayments, there are other more flexible options out there, such as revolving credit facilities.
Check to see if your existing lender will charge a prepayment penalty.
Understand the fees involved with the new business finance.
If your credit score and business revenue hasn’t improved, you may want to consider waiting to refinance your loan.
Be aware that the lender may also look at your personal credit score.
Debt consolidation is another type of debt restructuring; one that could be worth exploring if you have a variety of business finance obligations.
Debt consolidation enables you to consolidate your various business loans into one debt from a single lender. If you’re managing repayments from loans, a business overdraft and a business credit card, for example, you could roll them up into one monthly repayment.
The new, consolidated loan could be with one of your existing lenders or a new one. Consolidating multiple repayments can help save you time and effort from an admin perspective by generally making the repayment process easier to manage.
If you’re eligible for a loan with a lower interest rate you could also reduce your monthly cost. But even if your interest rate stays the same, a longer repayment term – while costing more overall – can help boost your cash flow by shaving money off repayments.
Check to see if your existing lenders will charge prepayment penalties.
Understand the fees involved with the new business loan.
Find out each of your existing finance facility’s annual percentage rate.
You can use Funding Options to see if you’re eligible to refinance or consolidate your existing business finance facility.
Start by telling us how much you need to borrow and what you need the finance for. Our Funding Cloud technology will compare up to 120+ lenders and match you with the right finance options for your needs.
If you’re approved and decide to go ahead with refinancing or consolidating, you’ll use the money from your new loan to repay your old ones, before repaying your new lender.
Again, if you're consolidating, you’ll only have one lender to repay each month.
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