The Definitive Guide to Refinancing your Small Business Loans

Business loans are one of the best ways to raise much-needed capital as your business grows. Many entrepreneurs turn to business loans to finance company growth, boost cash flow, or pursue any number of goals. But as time goes by and various loans add up, it may be time to consider refinancing your small business loans.

Take a look at our guide on everything you need to know about how to refinance business loans.

What Does Refinancing Small Business Loans Mean?

If you’re currently paying one or several loans, you may be able to reduce the total amount you owe and simplify your books by refinancing. Refinancing your business loans involves taking out another loan large enough to pay back your current debt obligations at a lower interest rate.

In addition to helping you save money, refinancing your business loans can also give you peace of mind.

It’s also just as easy as applying for any other business loan.

How Refinancing Business Loans Works

Simply put, refinancing your business loans means consolidating your current bills into a new loan payment with more favorable terms.

Refinancing your business debt doesn’t mean settling for just any new loan. It’s essential your refinanced loan comes with a lower interest rate or more manageable repayment terms so that you can reap the benefits.

It’s also critical that you work with a trustworthy lender that is willing to discuss your options and help you find a solution that will better your business.

Should You Refinance Business Loans?

Refinancing your business loans works best after you’ve improved your credit score, revenue, debt ratios, or other aspects of your business’ finances. This way, you’re more likely to secure favorable terms and benefit from a refinanced business loan.

You shouldn’t refinance your business if you’re struggling to make payments on your current loans. Taking out additional loans can backfire and cause your business to sink further into debt.

In order to ensure your business will benefit from refinancing, it’s important to verify that the costs of your refinance loan won’t outweigh the potential savings.

Like all loans, there are certain costs associated with refinancing your business loans. This includes various fees like the origination fee, underwriting fee, late fees, and more.

Different refinancing options will have their own costs and varying interest rates. You can start by using National’s Small Business Loan Calculator to compare your options and estimate your monthly payments.

The Benefits (And Potential Drawbacks) of Refinancing

So, is refinancing the right move for you to make? There’s no straightforward answer, but taking a closer look at your existing debts and financial situation can help you make the right choice.

These are some of the pros and cons of refinancing a business loan you should consider before moving forward.

Pros of Refinancing Your Business

• Reduced cost of financing: Refinancing a business loan can help you save money if you’re able to lock in a lower interest rate or more favorable terms.

• Better cash flow: Refinancing your business loans could help improve your business’ cash flow by lowering your loan payments, giving you more cash to save or spend elsewhere.

• Additional funding: Often, small business owners are able to borrow additional cash with a refinance loan. If you qualify for a larger loan, you could use the funds to give your business a boost.

Potential Cons of Refinancing Your Business

• Impacts on credit score: Most lenders will typically make a hard credit inquiry, which can negatively affect your score.

• Unfavorable terms: There’s no guarantee that your new business loan will have more favorable terms. If you’re not careful, there may very well be additional fees, prepayment penalties, or even collateral requirements. Make sure to always explore your options and have this explained so you understand the terms you’re agreeing to before you borrow.

The Steps to Refinancing

Step 1: Examine Your Business Debt

Knowing how much you owe will help you determine the amount you’ll need to borrow in order to refinance your business loans.

Take a look at your current balance as well as your interest rate on every outstanding account. You’ll also want to consider your repayment terms.

Remember to only consider refinancing loans with more favorable terms than what you have now.

Step 2: Gather Documents for the Application Process

Different financial institutions will have different requirements when evaluating your eligibility. Still, it’s a good idea to begin organizing the general documents you’ll most likely be asked to provide.

This includes any documentation proving your ability to repay your loan, such as your business’ credit history, recent tax returns, legal entity statements, balance sheet, bank statements, cash flow statements, and future projections.

Being prepared beforehand will help ensure your application process runs fast and smoothly.

Step 3: Compare Lenders 

With any loan, you should always shop around for the best rates – and refinancing your business is no different.

You’ll want to research different lenders and compare loan terms, fees, interest rates, and more to ensure you’re getting the best deal.

Most importantly, you’ll want to work with a lender who is trustworthy, willing to understand your finances, and find you a beneficial solution  – instead of selling you on the first option available.

A lending marketplace (like National) allows you to compare rates and terms from various options, without applying in multiple places, unlike a direct lender.

Keep an eye out for lenders with a proven track record of helping other small business owners.

What Are Your Options?

Looking to refinance your business? The good news is that you have many different options to choose from. Make sure to consider all your options and inquire through more than one lender in order to find a trustworthy partner.

We’ve outlined the most common types of refinancing business loans, but you can also consider additional types of small business loans.

SBA Loan

The Small Business Administration (SBA) offers some of the most favorable loan terms to small business owners—including competitive rates and long repayment terms. Although the SBA does offer refinancing options, you most likely won’t be able to refinance an existing SBA loan with another SBA loan. Learn more about SBA loans and how to apply.

Bank Loan 

Many traditional banks will offer solutions to help with refinancing your business loans. However, keep in mind that bank loans typically come with strict requirements and a process that takes months. You may not be able to qualify if your business is lacking in one or more fields.

Alternative Loans

Just like traditional banks and the SBA, online lenders (also called alternative lenders) offer refinancing options for small business owners.

Because there are fewer regulations, online loans are simpler and easier to qualify for than traditional bank loans. They also come with a diverse range of interest rates and loan terms, whether you plan to refinance business debt or not.

How to Refinance Your Business

Now is a great time to refinance your business, especially if you’re already going through cash flow fluctuations. Even though it may not seem as if you’re saving a substantial amount of money, refinancing your business loans can help simplify your finances and offer more peace of mind as you grow your business.

If you’re ready to refinance your business or want to explore more of your options before making a decision, you need a trusted partner who can help you evaluate your options.

Through our 75+ lender marketplace and industry-leading team of knowledgeable Business Financing Advisors, we can help. We specialize in working with you to learn about your needs, then finding a tailored solution to your business’ financial needs and goals.

Ready to get started? Fill out our 60-second application and we’ll reach out to discuss your options!