Business Loan Refinancing

A guide to helping you understand and compare business loan refinancing options online


A guide to business loan refinancing

Whether you took out a loan to cover the cost of a new business start-up or needed emergency cash to cover a cash flow emergency, there is a strong chance you were given a loan with a high-interest rate and unfavourable terms. The limited options probably meant that you were forced into accepting the arrangement because your business was not in a position to secure a better deal.

However, you are not alone and it is very common for businesses to repay these loans without shopping around for better terms and lower rates. When businesses take out a loan it is based on their current financial position and trading patterns, however the business can change and may qualify for an alternative payment schedule.

If your business has grown, or your credit report has improved you could benefit from business loan refinancing.

How does business loan refinancing work?

The first stage when you are looking to refinance a business loan is to apply for a loan, with better terms than your current loan. If the loan is approved, you should then use the funds to instantly pay off the original outstanding loan. In some situations, businesses have a number of outstanding loans which may not have the best terms, instead you can use refinancing to consolidate the debts into one easy to manage payment.

If you struggled with accessing the lowest interest rates and longest repayment terms in the past, refinancing with a new lender could save you money, or align the repayment terms with your current levels of trading.

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How to decide if refinancing is right for your business

If you are trying to decide whether business loan refinancing is the right option for your business, there are a variety of factors you should consider. In general, if your overall costs will decrease by more than 5% or you are able to extend the repayments by more than 12 months, it is worth refinancing.

Although, every business is operating in unique circumstances, so you should consider what exactly you are looking to achieve by refinancing. The most common reasons why businesses refinance loans are to extend the repayment period, or lower monthly costs by reducing their interest rate. Although, some businesses choose to refinance a loan to switch to a fixed rate loan, unlock new equity in the business, or release assets which were provided as collateral.

The next step is to decide whether business loan refinancing will benefit your business enough to warrant taking out a new loan. If the new loan is likely to improve the financially stability of your business, then it will probably be worth refinancing.

The total amount you will need to borrow from a new loan will depend on your current circumstances and the outstanding finance agreements. The best way to estimate how much you may need to borrow is to add together the current outstanding balance on agreements and the additional funds which your business requires.

The final aspect to consider before deciding whether to refinance is the cost of the new loan. Although the interest rate will be lower, there could be an origination fee of up to 5% which may remove any potential savings. In addition, the current lender may charge fees for settling the loan early.

Are there any disadvantages to business loan refinancing?

As with all loans there will always be advantages and disadvantages to the business, which can mean that it is better to stick with the existing loan arrangement. If your credit rating is low you will not have access to lower interest rates and long repayment terms, so refinancing could actually work out more expensive.

Before signing a new loan agreement, consider the total cost of any fees and charges. In addition to the standard origination fee, as there may be charges for underwriting the loan, legal costs, appraisal fees and closing costs.

While you have been repaying your current loan you have also been building a relationship with the lender, who is likely to have a great knowledge of your business. By severing the relationship, you could lose access to other products which the lender offers to long-term customers.

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Am I eligible for business loan refinancing?

Although we work with a vast panel of lenders, the criteria for each financial product can vary significantly. We have developed a finance finder tool which will assess details such as your monthly income, annual turnover and outstanding loan amounts, to present you with a list of new loans which you prequalify for. By assessing the various financial aspects of your business our tool will provide you with a list of loan options, to make it easy for you to see whether you could save money or benefit from a longer loan repayment period.

Our lenders include traditional high street banks, online banks and alternative forms of finance. By working with a variety of lenders we are able to offer anything from £1,000 up to £20,000,000. Whether you are looking for an overdraft, unsecured loan, secured loan or a merchant cash advance, our lenders specialise in providing access to all types of business finance.

In general, the best loan terms are offered to established businesses with a good credit history, proof of financial income in the form of bank statements and tax returns, alongside a comprehensive business plan. Although, if you are able to provide security or a personal guarantee it is likely that you will be offered a lower interest rate and longer repayment terms.

An unsecured loan for a small amount will usually need repaying within a period of 12 months, with long-term secured loans offered with affordable repayments spread over several years. The most common type of business refinancing loans are long-term loans, as most businesses will be looking to consolidate various smaller high-interest loans, or to take out a loan with lower monthly repayment amounts.

How to apply for business refinancing

Once you have used our finance finder tool to find the ideal loan, the application process is very simple. To ensure the application process is quick and easy you should prepare the financial paperwork in advance.

The lender will want to see financial documents which show exactly how your business is currently trading, alongside predicted trading patterns for the future. To improve your chances of being accepted for the loan it is advisable to include a detailed business plan, as this will show the lender your plans for the future growth of the business.

Once the lender has the necessary documents, they will assess the application and value any assets. In some situations, this can lead to funds being released within 24 hours, although for secured loans it may take a bit longer to perform the necessary valuation checks.

We are committed to providing businesses with access to the most competitive and flexible loans, so we will also discuss the various options available to you with business loan refinancing. Our useful finance finder will help you to quickly assess the total cost of the new loan, which can help you make an informed decision about taking out a new loan. If you would like to discuss refinancing in more detail, please contact our team today.

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If you need some free advice our business experts would be happy to help

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