Hey there! Are you considering refinancing your business loan but unsure how to go about it? This article is for you. This article aims to show you the step-by-step guidelines to successfully refinance a business loan.
In the meantime, many business owners rely on loans to cover their business expenses. However, in the long run, you may not always be happy with the terms of the loan. In this case, refinancing your business loan might be a good idea, and this is because it can help lower your interest rate and also expand your repayment schedule.
Refinancing a business loan means taking out a new loan to pay off the remaining balance of an existing loan to get better terms or a higher amount. Getting refinancing for a business loan isn’t hard, but there are certain steps and guidelines you will need to follow to increase your chances of approvals.
What Does It Mean to Refinance a Business Loan?
Before learning how to refinance a business loan, you must understand what it entails. As mentioned above, refinancing a business loan means applying for a new loan to pay off your existing debt.
You can either get this refinance from the same or a different lender. Typically, the main aim of refinancing is to save your business money and also to streamline cash flow. You can achieve this goal by refinancing a loan with better terms, which include;
- Lower interest rates
- Fewer monthly payments
- Longer repayment period
- Lastly, less frequent payments.
The next section of the article will highlight the steps and guidelines on how to successfully refinance a business loan.
How to Refinance a Business Loan
In this section of the article, we have created step-by-step guidelines on how to successfully refinance your business loan.
Review your Existing Business Loan
The first thing to consider is determining how much you owe, as this will enable you to know your progress. Also, this will ensure that any new loan offers can provide better rates and terms than your current one.
To go about this, you can check your online account or contact your lender for the following details:
- Outstanding balance from your current loan
- How much time is left to repay the loan?
- Your present repayment schedule. This should include your weekly or monthly bill.
- Also, your current business loan interest rate
- In addition, your lender prepayment penalties
You will need the above details to successfully review your existing business loan. You can also request a payoff quote from your lender; this will determine the total amount needed to pay off your existing business loan, including the interest that will accrue between now and the official payoff date.
Create a Refinancing Goal
The next step is to create a refinancing goal. This will help you narrow down the best refinancing deal for your needs. Most business owners want a lower payment, which could mean refinancing to have a longer repayment term. On the other hand, others want to get out of debt as fast as possible and might be in search of a lower interest rate. In this case, you must define your refinancing goal.
Review your Quantification
Once you’ve defined your goal, you will have to review or evaluate your business quantification. This will help determine what type of loan and amounts you might qualify for before beginning the application process. It is important to note that most lenders will go through your credit score, time in business, and annual revenue when underwriting your loan application.
Also, they may consider your available collateral, financial accounts, and cash flow. You need to consider all these and other requirements before beginning your application.
Research and compare lenders
You can finance your business loan by applying for a loan from your current loans or a new lender. However, you will need to first research and compare lenders before deciding whether to stick to your current lender or apply for a loan from a new lender. Generally, you will have to research and compare three major types of lenders, including banks, SBA lenders, and online lenders.
Banks
This lender offers the lowest interest rates and desirable terms, which makes them an ideal option for refinancing. However, they have strict business loan requirements and also might be slow to fund.
SBA Lenders
To apply for a business loan refinance with SBA lenders, you will have to meet specific requirements. Also, they have competitive rates and terms. However, they may be slightly easier to qualify for than bank loans, and you will need to meet strong criteria. Lastly, SBA loans are also slow to fund.
Online Lender
The last lender to compare and research are online lenders. They offer fast financing and also offer flexible eligibility requirements. However, they tend to have higher interest rates than other options.
Ensure you research and compare options in terms of interest rates, repayment terms, payment schedules, fees, and qualification requirements before selecting a lender.
Prepare your documentation and apply
After determining the best business loan refinance for your company’s needs, you start gathering your documents to begin your application. Here are some of the documents you will need:
- Business license or proof of ownership
- Employee identification number
- Your personal and business bank statements
- Also, your personal and business tax returns
- Balance sheets
- Current loan statements
- Your business plan
- Also, collateral information (optional)
Once you receive approval for a refinance loan, ensure you go through the terms and conditions of the offer to figure out if it’s the most competitive option for your business. By following the above steps and guidelines, you can refinance your business loan with ease.