Is Refinancing Your Business Loan Right for You?
Refinancing personal loans is a fairly common practice, but did you know that you can also refinance your business loan? According to Finder, you can save a significant amount of money by assessing your loan options. This article will explain the potential benefits of refinancing a business loan and how to go about the process.
What is Refinancing?
Refinancing consists of obtaining a loan with more favorable terms and using the funds to pay off your previous balance.
Benefits of Refinancing
If you want to save money overall, you can seek out a loan with a lower annual percentage rate (APR) which will reduce payments for interest.
However, if you prefer to have more cash on hand in the short term, you can refinance with a loan that has a longer term and a lower payment.
In some cases, you may be able to attain a loan that checks both of these boxes!
If you’re looking for more predictability, switching from a variable rate to a fixed-rate loan may help you to budget for your expenses more accurately.
Other benefits of refinancing include releasing personal collateral used to obtain your previous loan, accessing equity in your business, and consolidating multiple debts into one payment.
Is Refinancing Right For You?
While there are many potential benefits, there are also some cases in which refinancing might not be the best choice for your business. For example, if you’re dealing with bad credit, you may receive a higher interest rate than the loan you’re looking to refinance and will spend more money in the long run. Other reasons to reconsider refinancing include high fees to pay off your original loan and risking losing the good relationship you have with your current bank.
How to Refinance a Business Loan
First, you will want to make sure that your business is eligible for a refinance. In order to qualify, you’ll need to have been in business for at least two years, have good credit history, and be able to provide detailed documentation including proof of income, a business plan with estimated growth projections, and six months of loan statements.
After determining that you are eligible to refinance, you’ll want to consider which lender you’d like to use. Consult your financial professional to help you assess which one is right for you.
When you’ve decided with whom to use, you can apply for your new loan. You will need all of the above documentation as well as your business tax returns and profit and loss statements for your company.
Once you are approved, you can move ahead to the settlement process. Sign your new loan contract, pay off your previous loan, and begin making your new loan repayments within about a month.
