How Can I Refinance My Existing Expensive Business Debt?

Have you considered refinancing to consolidate business debt or get lower rates with an SBA loan?

SBA loans have some of the lowest interest rates and longest repayment terms. However, refinancing business debt isn’t a decision you should take lightly. To maintain the financial health of your small business, do your homework and be sure to work with a reputable lender.

What is business debt refinancing?

The basis of refinancing business debt is converting original debt, like high-cost Merchant Cash Advances, into a new debt instrument. By paying off the debt obligations with a new loan, businesses can consolidate debt and obtain better interest rates and lower payments.

So how do you know that it's time to refinance business debt? Ask yourself these three key questions:

  1. Are the terms of your current loan competitive? Check out alternative lenders, banks and credit unions to find the lowest interest rates with the best terms.
  2. How much interest is left to pay on your current loan? If you're getting close to the end of an amortized loan (where interest is in early payments, principal the later ones) refinancing may not be the best answer. Towards the end of a loan, the interest rate may be high but most dollars are going towards the loan's principal.
  3. What are the costs of getting a new loan? Fees can wipe out any savings you'll get from refinancing, so it's time to get out a calculator. Larger loans cost more. If you plan on using real estate as collateral for your loan, you'll also need to factor in an appraisal, which can be costly.

It is also worth mentioning that there are debt refinancing offers that sound too good to be true. And it's typically because they are. Debt cannot simply disappear. Companies that offer to consolidate all of your loans and sell them may be making an impossible promise. Before you refinance your loans, make sure you know the background of the lending institution and investigate exactly how its debt-refinancing plan works. Avoid scam artists who can lead you into an unrealistic - and costly - debt elimination program, and consider an SBA loan if you are qualified.