For businesses, keeping costs down and improving cash flow can be key to maximizing efficiency. Fortunately, refinancing a business loan can help with both and provide additional benefits.
Here are some things to consider as you decide whether refinancing makes sense for your business.
Determine what the objective of refinancing is early on. Is it reducing your interest rate, term, payment frequency, or monthly payment? Are you hoping to access equity on an existing real estate loan? Prioritize what’s most important to you.
If the goal is to minimize the monthly payment, for example, you may decide against shortening the term knowing it would decrease total savings. In this case, improving cash flow would appear to be more critical to sustaining the business.
As with any loan application, refinancing will result in a credit check and a hard inquiry on your credit report. It’s best to review your business credit profile and personal credit report in advance to ensure information is reported accurately. Promptly dispute inaccurate information to secure the highest approval odds.
Business owners may be able to refinance a variety of business loan types. This may include:
- Term loan
- Commercial real estate loan
- Business line of credit
- Working capital loan
- Equipment loan
Take time to conduct research. As you shop for financing, make note of the interest rate, payment term, payment frequency, and monthly payment offered. In addition, estimate closing costs or other applicable fees to get a good sense of what the loan will cost.
Compare these terms to those of the existing debt and use a loan comparison calculator to weigh your options. If applicable, be sure to factor in prepayment penalties for paying an existing loan off sooner than the agreed upon term. Not all lenders charge these fees, and it’s most common in real estate.
Small business owners should always have a sense of what the current economic environment is like. Are there changes in interest rates, lending regulations, or market conditions? Be alert and prepare to act if overall conditions are favorable for the business.
To illustrate, a real estate investor may be able to reduce their hard money loan’s 12% APR to less than half by refinancing now. In addition to competitive rates, A+FCU offers 30-year amortizations, 15-year terms, and no prepayment penalties.