How Does Refinancing Work?
All small businesses need capital to grow, but when you begin to rack up credit card debt or take out multiple business loans it can become hard to keep up with payments. The interest payments can get quite high. If you find yourself in this situation, you may want to consider consolidating your business debt.
At Lendified, we often refinance loans for small business owners who have financing with merchant advance companies or other online lenders. In fact, many of the businesses we help don’t understand how expensive their MCA debt is. MCAs are the most expensive alternative lending option and should be seen as a last resort for financing. Daily payments with an MCA limits how much cash a business can hold. Which is troubling because cash is the lifeblood of any business. Our application process is seamless and our bi-weekly payments help you manage your cash levels and worry less about bankruptcy.
If you find yourself with a loan that is now too expensive or the risk level of the loan has increased to a level that makes it hard to work with, you can refinance your loan into a better one. There are many variables that can ultimately affect your business since you took out your first loan but don’t worry there are many ways in which you can improve your loans terms.
What Is Refinancing?
Refinancing allows your small business to replace an existing loan with a new loan that pays off the debt of the old loan. To that end, when refinancing your loan you should make sure that the new loan has better terms in order to improve the finances of your business. At Lendified we take many things into consideration to make sure that we are doing what is best for your business when refinancing your loan. We usually see business owners refinancing their loans to:
- Decrease the amount they pay each month
- Get a better rate
- Extend the term on their loan
- Allow for additional borrowing
- Make their payments more convenient
- Improve their cash flow
What are the Advantages of Refinancing:
Refinancing your loan can take a bit more time, however refinancing has several benefits that can enable your small business to grow.
Lower Interest Rate: Often, if you have racked up debt you can save a lot of interest if you consolidate. The interest on credit cards and other loans can be notoriously high, and it can sometimes lead business owners to max out cards or miss payments. By consolidating, you can get a more affordable monthly payment and even free up your credit cards.
Single Creditor: Dealing with multiple creditors can make it difficult to time and prioritize your payments. If you make the decision to consolidate your business debt, you will be sparing yourself the headache of sorting all that out. Instead, you will only have to focus on making a single payment on a schedule you can easily remember. Having a single creditor allows you to keep track of your payments, manage your cash flow, and to keep better track of your debt.
Improve Your Business Credit Score: Loan consolidation allows you to pay off existing debts (which looks good on your credit report) and your score will continue to rise as you make payments on the new loan.
Save Money for Your Business: When refinancing your loan for your small business a common reason is to reduce interest rates in order to save your business money. One way to do so is to increase the term on your loan, this can result in significant savings for your business.
Decrease the Cost of Your Payments: Refinancing your small business loan can help reduce the cost of your monthly payments. This can put your business in a better position to have more money available and to manage your cash flow more easily.
Why Refinancing May not be the Best Choice for Your Business:
Refinancing your loan for your business can have upside but you have to make sure that it is the right move for your business. There can be costs and fees that do not make it a worthwhile choice for your business
Payout and Origination Fees: When refinancing your loan for your company, you have to make sure you understand the fees that you may have to pay. In order to make sure that you make the correct decision ask your loan advisors and other creditors what fees you may have to pay when paying out another loan and what origination fee you may have when getting a new loan.
Potential Higher interest Costs: Refinancing can also affect your business negatively. When changing the structure of your loan and extending payments over a longer period of time, there is a possibly you end up paying more interest on your initial debt. Yes lower payments can help your business grow, but this can also be offset by paying higher costs over the lifetime of the loan. It’s always important to make sure you do your due diligence when speaking to alternative lenders so you do what is right for your business. Ask your loan advisor for a quick amortization so you can get a view as to how the interest costs can change with the different loans you may be considering.
So is Refinancing the Correct Decision for Your Business?
When you first started your business, you may have had limited debt options because of your lack of experience or credit history. As a result, you might be stuck with loans that are expensive or have too many payments each month. If you find yourself in a similar situation, refinancing your loans could help you. Is always important to understand your options when considering alternative lending so that you do what is best for your short-term and long-term goals for your business.