How to Refinance a Business Loan - Step by Step Guide


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How to Refinance a Business Loan

4 min read. December 10, 2021 – by Joe Camberato

Refinancing a business loan is absolutely possible. In many cases, businesses are able to secure more favorable interest rates or terms when they refinance. However, this isn’t automatically the case. 

There are many different factors to consider before refinancing a business loan and you’ll need to know all the information before making a decision. 

What is Business Loan Refinancing?

Refinancing a business loan allows you to take out a newer, oftentimes better loan to pay off your current debt. Refinancing may help you secure a lower interest rate, longer repayment term, or lower monthly payments.

Why You Should Consider Refinancing Your Business Loan

Refinancing a business loan can bring about many benefits. If you qualify for a better interest rate or repayment schedule, you could improve your bottom line and free up working capital. Top reasons to refinance business debt include:

Lower interest rates

Refinancing may help you obtain lower interest rates that translate to significant savings. This is possible when market rates drop or if your credit score has improved since you originally applied for business financing. For example, interest rates have been near zero since March 2020 and many businesses have successfully refinanced to take advantage of these savings. 

Reduced monthly payments

Refinancing entails taking out a new loan to cover the remaining portion of your debt. In other words, your new loan is usually less than your original loan – which means monthly payments will typically lower accordingly. 

Less Frequent Payments

Refinancing gives you another chance to select the payment terms that work best for your business. In some cases, you may be able to opt for fewer or less-frequent payments – which may help improve your cash flow. 

How to Refinance Your Business Loan

Refinancing a small business loan is a fairly straightforward process. Here is what you can expect. 

Step 1: Understand Your Goal for Refinancing

Understanding your reasons and goals for refinancing can put you in a stronger position to identify the best deal for your business. Ask yourself what you are aiming to accomplish. Do you want to lower your monthly payment, lower the cost of your debt, or switch to a more suitable payment schedule? Try and define the terms you are hoping to secure before applying. 

Step 2: Review Your Business’s Finances 

Start by examining your current business debts – including your current APRs and your monthly payments. It’s also important to review your overall business finances, such as your credit score, bank statements, revenue levels, and more. These factors will heavily impact your ability to secure low-interest rates and more favorable terms on a new loan.

Step 4: Consider Your Options to Refinance a Business Loan

It’s possible to refinance your business debt via a number of different options. 

Bank loans: Traditional banks are known for offering competitively low rates on loans. However, these lenders also have strict borrower requirements and long application processes.

SBA loans: The Small Business Administration (SBA) partners with lenders to offer government-backed loans. These loans feature many benefits, including low-interest rates and favorable terms, that make them an ideal refinancing option. Unfortunately, these loans can also be difficult to qualify for. And you can’t refinance an SBA loan with another SBA loan. 

Loans from fintech lenders: Fintechs and online lenders can be especially popular choices for refinancing business loans. These lenders offer flexible terms, fast funding, and maintain more loose qualification requirements. 

Step 5: Compare Different Business Loan Refinancing Lenders

If you’re going to refinance a business loan, you’ll want to review a number of different options before selecting the best fit. National, a leading-business financing marketplace, makes it easy to compare numerous financing offers from over 75 distinct lenders.

Simply apply online via a 60-second application and upload your documents. From there, you’ll be in touch with a Business Financing Advisor who will go over your personalized offers, along with the interest rates and terms. Compare and contrast different options until you opt for the best solution according to your business goals. 

Types of Business Loans Suitable For Refinancing

It’s possible to refinance almost any type of business loan. The most common types of business loans that are refinanced include term loans, working capital loans, equipment loans, real estate loans, microloans, business lines of credit, merchant cash advances, and more.  

Unfortunately, refinancing an SBA loan tends to be more complicated. In most cases, it’s only possible to refinance your SBA loan when your lender has either denied new funding solutions or refused to modify your original loan. Even then, in order to refinance, you’ll most likely have to settle for a non-SBA loan. 

Pros of Business Loan Refinancing

Refinancing small business loans can help you improve cash flow, access more capital, and even save over the long run. How you choose to use your refinancing loan and the new rates you qualify for will ultimately determine how you benefit. 

For example, if you’re currently stuck with above-market interest rates or if your business’s financials have improved since you first sought out financing – refinancing may help you secure a lower rate. 

Refinancing at a lower interest rate allows for greater savings by reducing the total cost of borrowing – and can even help you pay off your loan faster.

Many times, refinancing entails taking out a new loan that’s smaller than your original debt. This can help lower your monthly payments – freeing up capital to be used on other expenses. 

If you have multiple business loans and are having trouble keeping track of payments, refinancing can also help you consolidate your debt. In other words, all your existing debt would be rolled into a new loan and single monthly payment. And if you’re able to secure a lower interest rate, you may even be able to save over the total lifetime of the new loan. 

Refinancing may also allow you to take out a new, higher funding amount. In this case, you could use the additional influx of capital to invest in business expansions or smooth out cash flow disruptions. 

Cons of Business Loan Refinancing 

Despite the many benefits of refinancing a business loan, it’s important to be aware of some of the potential drawbacks. For starters, refinancing does come with a new set of fees, including origination fees, underwriting fees, and even possible prepayment penalties. These fees can quickly add up – so it’s important to ensure the benefits outweigh the costs. 

That said, there’s no guarantee you’ll receive a lower interest rate or better repayment schedule on your new loan. This is especially true if market rates have gone up or if your credit score has dropped. 

For example, many businesses are currently counting on the Fed to raise rates sooner than expected. This may make borrowing and refinancing business loans more costly as early as spring 2022. 

Other possible drawbacks include a temporary drop in your credit score. When you apply for any type of financing that requires a hard inquiry, it’s important to prepare for a slight credit score drop. The good news is that this effect is typically short-lived. 

Find the Best Rates to Refinance Your Business Loan 

Different lenders will likely offer you distinctive rates. Ideally, you’ll want to compare different options for refinancing your business loan. It can be pretty tedious to apply at numerous lenders – unless you’re using National. 

National is a leading business financing marketplace that can help you find the best refinancing deals by comparing offers from over 75 different lenders. With a single, 60-second application process, National will connect you with a multitude of financing solutions for speedy, easy funding. 

Learn more about refinancing your business loan and the new interest rates you could qualify for here.

Learn more by filling out our 60-second application!

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Last Updated on December 10, 2021

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Joe Camberato

Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.