Is it possible to refinance that small business loan you have? If you’re searching for an answer to this question, you’ll be relieved to hear that the answer is, “yes”. Typically, refinancing a small business loan is a pretty straightforward process, but it helps to equip yourself with knowledge before you get started.
How the Business Loan Refinancing Process Works
There are many benefits to refinancing your small business loan. You can save money by lowering your interest rate, for example. You can also free up additional working capital in your budget by reducing your monthly payment.
The process is very similar to refinancing a mortgage or a student loan. First, you secure a new loan to pay off your original loan. You then begin making payments on the new loan. Ideally, this new loan will involve more favorable terms, such as: a lower annual percentage rate (APR), lower monthly payments, less frequent payments, etc.
Refinancing a business loan can be a little different than other business types, however, and involve additional steps. You might be required to provide extensive documentation and specific qualification factors. Why? Collateral. When collateral is involved, the lender might require you to provide a security interest, like receivables, inventory or equipment.
The Pros and Cons of Refinancing
As is the case with any financial decision, it is important to weight the pros and cons of refinancing a small business loan. The biggest advantage of choosing to refinance is, of course, improving your business’ cash flow. Considering 51 percent of business owners have to sacrifice paying themselves due to insufficient cash flow, additional working capital is a big benefit. Every business needs a smooth flow of cash in and out of their business to operate smoothly, cover payroll and grow.
On the con side, there are a few considerations. For example, there are potential prepayment penalties or fees when paying off the old loan early. Refinancing for a new loan could also negatively impact your credit score. It is also important to consider the current interest rate environment. Is it favorable? If you’re refinancing after rates have increased, it will not be as fruitful for interest savings.
Consider Alternative Lending Solutions
For some business owners, a small business loan is simply not an option. If you need additional working capital, consider the many alternative lending options available, like a merchant cash advance. With the help of merchant cash advance brokers, your business can quickly secure the flexible business financing it needs to operate smoothly.
Author Bio: As the FAM account executive, Michael Hollis has funded millions by using business fundingmerchant cash advance brokers solutions. His experience and extensive knowledge of the industry has made him financeexpert at First American Merchant.