Refinance Business Loans: What You Need to Know
Refinancing can be a good option if your business can qualify for lower rates and save on borrowing costs — but it’s not right in every situation.
Nerdy takeaways
- Refinancing a business loan may help you save money on interest — especially if you have improved your business’s qualifications since receiving your original loan.
- Bank loans, online loans and SBA loans can all be used to refinance business debt.
- If you’re considering refinancing, start by setting a financing goal, understanding how much you owe and thoroughly comparing lenders.
Business loans can typically be refinanced, just like mortgages or other personal loans. When you refinance, you apply for a new small-business loan — ideally with more favorable rates and terms — in order to pay off your existing debt.
Refinancing a business loan is a lot like refinancing a mortgage: You replace your existing business loan by applying for a new business loan. That new loan pays off your old loan and replaces it with a new loan, ideally with a better deal than your old one. You could refinance a business loan to get a lower interest rate, a longer repayment time, a lower monthly payment or more favorable terms, like less frequent payments.
You can try refinancing with the same lender or explore different funding options, such as a bank, online lender or with an SBA loan. Your new rates and terms will depend on the lender’s offerings and your personal and business qualifications. Furthermore, your existing loan might charge a prepayment penalty, while your new loan might have additional costs, such as origination, underwriting or SBA guarantee fees.
If your new loan’s estimated expenses seem high, it’s best to postpone a business loan refinance. But if you find a significantly lower rate, a refinance could help reduce your monthly bill and give your budget some extra breathing room.
If you can save on borrowing costs, refinancing may be a good option for your business.