Most businesses use credit and loans to settle debts, but the terms presented may not be suitable for you. That is why it’s advisable to refinance a business loan as it reduces your rate and increases your payment duration. However, you might pay additional expenses or finance projects. Now the question is how can I refinance a business loan?
Aside from the benefits of reducing your interest rates, it’s important to note that refinancing a business loan isn’t met for everyone. In this article, we will discuss the major things you need to know about how to refinance a business loan.
What Does Refinance a Business Loan Mean
Refinancing a business loan is similar to refinancing a home loan. This involves replacing your main business loan by applying for a new one. When it’s been replaced by the new loan, it settles your previous loan and offers a greater deal than the previous loan. Additionally, you will experience a decrease in your interest and monthly payments, an increase in payment duration, and reasonable terms when you apply for the new loan.
Also, you can decide to refinance your business loan with the same or different lender like a bank, online lender, or with an SBA loan. Your personal or business eligibility, new rates, and terms will be affected based on the lender’s offer. Furthermore, your new loan might include extra charges, like origination, underwriting, or SBA guarantee fees. While your old loan might impose fees like prepayment penalty. It’s also important to delay business loan refinance if you notice high costs.
How to Refinance a Business Loan
As mentioned earlier, business loan refinance might not be suitable for everyone despite its amazing benefits. Also, you should be aware that many lenders offer different methods when it comes to business loan refinance but there are some typical procedures you can follow. The following includes;
Set a goal
Before you decide to refinance a business loan, it’s important to set a goal. For most business owners, the main objective of business loan refinance is to get a minimal interest rate that can help reduce your monthly payment. However, it’s refinancing a loan that has a higher rate is not advisable. Furthermore, increasing your amortization period can be another goal to look forward to. This helps to manage your cash flow and reduce payment but this method will increase the total debt.
Evaluate your eligibility
Before you proceed with your search, review your business qualifications to know what kind of loan to apply for. Some lenders will check your credit score, annual income, and business duration when evaluating your loan application. Also, they might consider checking any available collateral, cash flow, and bank accounts.
You should highlight any growth while refinancing if your credit score and annual income are good as it will offer you access to more reasonable rates and terms. Furthermore, the duration of your business can help your application, especially when your current loan is just commencing.
Know the amount you owe
Check the progress of your old business loan to guarantee that a new loan offer can offer reasonable rates and terms, unlike the existing one. You can begin to either review details online or call your lender for some information. This may include your outstanding debt, payment duration, current repayment time involving weekly and monthly expenses, interest rate, and additional charges if applicable. Furthermore, ask your lender to settle off the quote as it indicates the overall sum to pay your current loan.
Get documents and apply
After you have seen an ideal lender to apply for your business loan refinance, you can begin to gather the necessary documents for future purposes. The document necessary differs from each lender but there are some common documents you might need to offer. This may include proof of ownership, employee identification number (EIN), bank statements, tax returns, balance sheets, existing loan statements, collateral, and business plans.
Shop around
You can choose to refinance a business loan with the same lender or a different one. In addition, there are three common lenders refinance business loans which include banks, online lenders, and SBA lenders. Traditional banks and credit unions offer the best rates and terms but have affirmed business loan requirements and long application procedures.
In addition, online lenders provide considerable requirements, and loans can be gotten within a short period. Despite assisting individuals with bad credit scores, it offers higher rates and unreasonable terms. Furthermore, the Small Business Administration (SBA) offers some loans to easily qualify borrowers for loans than banks. However, you should note that you must meet the requirements offered by this lender including a good personal credit score.
Submit an application
When you have both gotten a suitable lender for your business and have gathered the necessary documents, you can decide to submit your application. You are mandated to fill out the documents and wait for the lender’s decision. You should note that the application process might be delayed to know if your application will be accepted. However, if your application is denied, you should try again rather than feeling disappointed. And it’s advisable to wait for at least 30 days before you refinance for a business loan.
Final Thought
Deciding the best time to refinance a business loan can be confusing, as it mandates careful thinking of numerous variables. Furthermore, observing the market trends, interest rates, and financial stability of your business can be beneficial for you when making a firm decision. Lastly, refinancing a loan might offer you a robust economic future once you have determined the right moment.