Refinancing a business loan is absolutely possible. In many cases, businesses are able to secure more favorable interest rates or terms when they refinance. However, this isn’t automatically the case.
There are many different factors to consider before refinancing a business loan, and you’ll need to know all the information before making a decision.
What Is Business Loan Refinancing?
Refinancing a business loan allows you to take out a newer, oftentimes better loan to pay off your current debt. Refinancing may help you secure a lower interest rate, longer repayment term, or lower monthly payments.
Pros and Cons of Business Loan Refinancing
Refinancing small business loans can help you improve cash flow, access more capital, and even save over the long run. Still, it’s important to be aware of some of the potential drawbacks.
| Pros | Cons |
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If you’re able to get a lower interest rate, you can save money on interest and even pay off your balance faster. However, this isn’t a guarantee, and you should speak with your lender about this beforehand to avoid unnecessary fees.
Why You Should Consider Refinancing Your Business Loan
Refinancing a business loan can bring about many benefits. If you qualify for a better interest rate or repayment schedule, you could improve your bottom line and free up working capital. Top reasons to refinance business debt include:
Lower interest rates
Refinancing may help you obtain lower interest rates that translate to significant savings. This is possible when market rates drop or if your credit score has improved since you originally applied for business financing.
Reduced monthly payments
Refinancing entails taking out a new loan to cover the remaining portion of your debt. In other words, your new loan is usually less than your original loan – which means monthly payments will typically lower accordingly.
Less frequent payments
Refinancing gives you another chance to select the payment terms that work best for your business. In some cases, you may be able to opt for fewer or less frequent payments – which may help improve your cash flow.
How to Refinance Your Business Loan
Refinancing a small business loan is a fairly straightforward process. Here is what you can expect.
Step 1: Understand Your Goal for Refinancing
Understanding your reasons and goals for refinancing can put you in a stronger position to identify the best deal for your business. Ask yourself what you are aiming to accomplish. Do you want to lower your monthly payment, lower the cost of your debt, or switch to a more suitable payment schedule? Try and define the terms you are hoping to secure before applying.
Step 2: Review Your Business’s Finances
Start by examining your current business debts – including your current APRs and your monthly payments. It’s also important to review your overall business finances, such as your credit score, bank statements, revenue levels, and more. These factors will heavily impact your ability to secure low-interest rates and more favorable terms on a new loan.
Step 4: Consider Your Options to Refinance a Business Loan
It’s possible to refinance your business debt via a number of different options.
Bank loans: Traditional banks are known for offering competitively low rates on loans. However, these lenders also have strict borrower requirements and long application processes.
SBA loans: The Small Business Administration (SBA) partners with lenders to offer government-backed loans. These loans feature many benefits, including low-interest rates and favorable terms, that make them an ideal refinancing option. Unfortunately, these loans can also be difficult to qualify for. And you can’t refinance an SBA loan with another SBA loan.
Non-Bank loans: Online lenders can be especially popular choices for refinancing business loans. These lenders offer flexible terms, fast funding, and maintain more loose qualification requirements.
Step 5: Compare Different Business Loan Refinancing Lenders
If you’re going to refinance a business loan, you’ll want to review a number of different options before selecting the best fit. National Business Capital, a leading business financing marketplace, makes it easy to compare numerous financing offers from top B2B lenders.
Simply apply online via a 60-second application and upload your documents. From there, you’ll be in touch with a Business Finance Advisor who will go over your personalized offers, along with the interest rates and terms. Compare and contrast different options until you opt for the best solution according to your business goals.
Refinancing vs. Business Debt Consolidation
The main difference between refinancing and debt consolidation is the purpose. Refinancing is generally used to get a lower interest rate, whereas debt consolidation is used to centralize multiple loans under one to simplify repayment.
For example, a business may refinance a current loan because they’ve improved their financials and can qualify for a lower interest rate. Another business may seek out debt consolidation if they’re struggling to manage the repayment of multiple outstanding loans.
Consolidating a loan is technically refinancing. You’re moving outstanding debt under a new facility, which will require a new loan entirely. If you’re not strategic, this can lock you under a higher interest rate.
Documentation Needed for Business Loan Refinancing
Banks and credit unions will require more documentation than non-bank lenders, but they’ll still need some basic documentation to work with you. This will vary from lender to lender, but they could ask for:
- Driver’s license
- Business bank statements (going back at least one year)
- Business credit score
- Financial statements
- Time in business
- Proof of ownership (K1, schedule C, EIN, certificate of corporation, etc.)
- Business tax returns
- Collateral (if secured)
- Cash flow statement
- Business plan
The requested documentation will also depend on the financing solution you’re seeking. For example, revenue-based financing requires less documentation than term loans or equipment financing.
Which Loans/Financing Can You Refinance?
It’s possible to refinance almost any type of business loan. The most common types of business loans that are refinanced include term loans, working capital loans, equipment loans, real estate loans, microloans, business lines of credit, revenue-based financing, and more.
Let’s explore the main types.
| Type of Financing | Description |
| Business Term Loans | Term loans are provided in a one-time, lump-sum format and repaid over an agreed upon term. |
| Equipment Loans | Equipment financing breaks down the cost of an equipment purchase over a longer schedule. The borrower reaches an agreement with a lender, who purchases the equipment on behalf of the borrower and collects regular payments until the borrower covers the total cost plus interest. |
| Revenue-Based Financing | Revenue-based financing exchanges short-term funding for a percentage of a business’s future sales. Instead of an interest rate, borrowers are given a factor rate, which is multiplied by the funding amount to determine the borrower’s cost of capital. |
| Business Lines of Credit | Business lines of credit offer flexible access to capital on an as-needed basis. Refinancing a business line of credit involves paying off your total balance and opening a new line of credit. |
Unfortunately, refinancing an SBA loan tends to be more complicated. In most cases, it’s only possible to refinance your SBA loan when your lender has either denied new funding solutions or refused to modify your original loan. Even then, in order to refinance, you’ll most likely have to settle for a non-SBA loan.
Find the Best Rates to Refinance Your Business Loan
Different lenders will likely offer you distinctive rates. Ideally, you’ll want to compare different options for refinancing your business loan. It can be pretty tedious to apply at numerous lenders – unless you’re working with National Business Capital.
National Business Capital is a leading business financing marketplace that can help you find the best refinancing deals by comparing offers from top U.S B2B lenders. With a single, 60-second application process, our team will connect you with a multitude of financing solutions for speedy, easy funding.
Learn more about refinancing your business loan and the new interest rates you could qualify for here.
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Frequently Asked Questions
Is refinancing right for your business?
That depends – Do you think your business qualifies for a lower interest rate?
Refinancing is most powerful when you can get a lower interest rate. Otherwise, there’s not much benefit unless you’re looking to consolidate debt as well.
When is the right time to refinance my business loan?
When interest rates are lower, and your current financing has a rate that’s higher than average. It’s not guaranteed that you’ll qualify for a lower rate just because rates have fallen in general, though, so make sure to move strategically.
How do I calculate the potential savings from refinancing my loan?
First, take your current loan and determine the interest you’ll pay throughout the term. (Principal loan amount times interest rate times loan term = interest)
Since you’ve paid into your current loan, the new funding amount will be less. Take the new amount and use the formula above to calculate the interest you would pay on the refinanced loan.
Finally, take the two numbers and compare them. Are you paying less by refinancing?
Are there any risks or downsides to refinancing my loan?
Yes. If you don’t qualify for a lower interest rate, you can potentially lock yourself into a higher rate by refinancing or consolidating debt. Compounded by the extended term, this can cost a lot more in the long run.
You’re also paying fees on your new loan, which will raise the total cost.
Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.
Joseph Camberato
Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.
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