How Difficult Is It to Refinance a Business Loan?

July 28, 2017


Most home owners refinance their mortgage every several years to lower their repayments, free up equity, consolidate debt, or in another way allow them to do more with their money. You can refinance a business loan as well for the same reasons. When you refinance, you could save thousands of dollars over the course of your loan, depending on the terms of your new loan and how much you have left to pay off.

Business loan refinancing is a little different than mortgage refinancing. Your loan isn’t regulated by the National Consumer Credit Protection, or NCCP act. Lenders are, therefore, not forced to stick to strict lending policies.

On the other hand, business lending involves more risk for banks. You may have trouble making your repayments in the future if your business hits a rocky period. Also, business owners typically have to juggle more expenses than the average home buyer, another challenge that may make on-time repayments a challenge. Your lender will look for the right criteria to verify that you can pay back your new loan. You’ll need to have a strong business plan in place and excellent credit. This can make refinancing a business loan difficult, especially if your business has less than perfect credit.

Here is what you need to know about switching to a new business loan successfully. If you believe you’ll qualify, you may have a lot to gain from refinancing.

What You’ll Need to Refinance

Before you apply for a new loan, you’ll want to have several documents and a detailed financial history to prove you are a low-risk borrower. The more effort you put into your loan application, the more likely you’ll be able to get a good deal.

First, you’ll need a business loan proposal. It should include:

  • An overview of your proposal, known as the executive summary
  • Details of your business, such as your business structure, your operations plan, staff details, and information on the product or service you sell
  • Financial details, including your current and projected costs
  • Market details, demonstrating market interest in your product as well as information about your competitors

You’ll also need a detailed financial history. This will include proof of income as well as copies of loan statements for the business loan you are currently paying down.

The Importance of Clean Credit

When you refinance a business loan, having a high credit rating is a huge factor. Lenders are more likely to offer a loan to a business that has a track record of making payments on time and handling finances responsibly. If you have missed payments on your existing loan, it may be difficult to switch to a new one. Some lenders are more flexible than others.

Research various lending policies and loan products. Talk to a lending specialist to help match you with a lender that is more likely to approve your loan application, and that has the interest rate and features you are interested in.

Is It Worth It to Refinance?

There are a number of advantages of refinancing. On top of finding a more competitive interest rate, you can use your new loan to access capital to use for your business, to consolidate other debts, and to save on your tax. With a refinanced business loan, you may be able to benefit from negative gearing savings.

Before making the decision, make sure it’s worth it for your business and that switching to a new loan will help you meet your goals. You’ll have to pay several fees to refinance. Also, if you aren’t approved, you’ll have another enquiry into your credit file. This may make it more difficult to get approved for other lending products in the future.

Weigh the benefits against the potential risks and take an honest look at your business’s credit rating. Spend the time researching and preparing a powerful business loan proposal. You may also want to discuss your options with your tax accountant or another financial professional such as a mortgage broker to make sure refinancing is a smart business move for you.

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