At some point in our life, we have made decisions that we want to change or undo. Those decisions can be, for the most part, very distressing when they entail money. And it becomes more stinging when that money is used to pay for a debt with a large principal payment, ridiculous fees, a high-interest rate, or all of them at once.
This circumstance will not only make you feel bad, but it can also be very damaging to a prospering business. Like it or not, truth is that the business world is not always lenient of errors.
However, there are many ways to mend a financial decision that is not, for the most part, paying off. Loans or lines of credit particularly have plenty of options to alter terms, payment, and structure. But in this post, we’ll walk you through the most popular and widely-known option, which is refinancing. So, take a read!
What Is Refinancing?
Say, for example, you are an owner of a business who has been giving loan payments on the credit facility of your company over time. And your business has been running for at least a year when you took the credit to acquire the building. Plus, the offered terms by multiple lending organizations aren’t that great since your business is just starting out.
Requiring a new facility to aid your company to grow and progress, you procured the loan anyway. However, you are now burdened with towering servicing fees and interest rate. Well, you could opt to continue paying that old debt until you completely repaid it.
However, refinancing could save you lots of money over the loan’s life. In a nutshell, refinancing is merely the method of taking out a new loan with more advantageous terms to repay the old loan.
The latent collateral or terms stays the same, and the entire principal payment is the same. Nevertheless, the interest rate and the payments will change to your advantage. Greater than changing a costly loan with an acceptable structured one, business owners may opt to refinance to get some of the property’s equity. It is quite common in real estate and home mortgage.
When To Refinance?
When thinking about whether you must refinance, the biggest question to ask yourself is why. Why does it seem to be an excellent option? Secondly, examine whether your credit and financial situation have enhanced or not since applying for the original credit.
If you think your current financial situation hasn’t improved, then you won’t likely be approved to refinance. Requesting for a refinance when your company isn’t operating or running any differently than it was at first won’t provide you advantageous terms.
Moreover, your original loan might have, for the most part, some built-in risk management from the creditor, who wanted to ensure that they’ll get their money from the deal. The usual way to do this is through a prepayment penalty.
Here, lenders can charge the borrower a payment to refinance or pay off before the term of the original loan has run its course. These payments are typically based on the original principal payment’s percentage, which can reach huge sums, especially for commercial loans.
Refinancing is best for business owners whose operations and company have progressed, as well as those who’ve worked very hard to enhance their balance sheets and credit scores. It will work well for these people since refinancing is used as a means to save money and ignite growth over time.
Where To Refinance Business Loans?
There are a lot of options as to where you could refinance your business loan. It includes online lenders, credit unions, banks, and many more. However, where you decide to refinance will rely on several factors:
- Loan Type. Some creditors aim their attention on particular areas, for example, agriculture or real estate, which can boost your likelihood of getting approved. Plus, you might be offered better terms. Also, it’s important to know the intent of the loan you are refinancing.
- Is your business near credit unions and banks? Taking the time to look around with traditional creditors can aid you in getting better rates with advantageous terms, particularly if your company is in excellent financial health. Creditors can contend with each other to satisfy your needs, saving you lots of money over the loan’s life.
- Loan Health. Are you paying your terms on time? Did you maintain your business and personal credit scores very well? Creditors see these things significantly, and some will deny or charge loans altogether if you have a bad credit history. Use the loan payment calculator to manage your debts well.
Take ample time to study and learn what you are dealing with refinancing, just as what you’ve done when you first apply for a loan. Research your options and look around to obtain the best rates. Also, it’s important to conduct a deep business financial health check because it will provide you the most excellent opportunity for a great refinance.
Tiffany Wagner is currently taking a degree in Investment Management Analysis in her junior year in college. In the context of decision making and business strategy, she focuses on finance and information interpretation.