Unlock New Opportunities: How to Refinance Your Business Loan

Business loan refinancing has a reputation for being complex, and the idea of refinancing a loan may be more than some business owners can bear. Luckily, we’re here to tell you that it’s not only possible to refinance a small business loan, but doing so can open new financial opportunities not available to you when you initially applied for lending. 

Like a personal loan, a small business loan has the option of refinancing into better lending conditions with either a new or current lender. Business owners use the money saved from refinancing to expand their businesses, purchase inventory, or even build an emergency fund.

Refinancing: What It Is and How It Works

Refinancing a small business loan is very similar to refinancing a personal loan. It’s also important to distinguish that refinancing a business loan differs from debt consolidation, which combines multiple existing business debts into a single repayment. 

Although there are bank loans and other financing available for debt refinancing or consolidation, we’ll focus on startup debts, working capital loans, and lump-sum loans. 

The goal of a business refinance is to obtain more favorable loan terms, such as lower monthly payments, lower interest rates, repayment terms, or less frequent payments. Basically, refinancing is applying for a new loan (with better repayment terms) and using the funds from the new loan to pay off the old one. 

Of course, some borrowers choose to use extra funds from a refinance to have working capital to pay for other expenses, make investments, or even cash flow. Qualifying for a business loan refinance depends on the lender you partner with and their specific requirements for loan approval.

Traditional banks and credit unions will have somewhat strict requirements, and the Small Business Administration will have the strictest eligibility stipulations. For example, refinancing using an SBA Loan, such as the SBA 504, a business must operate in the United States, have a net worth of $15 million, and an income of less than $5 million after federal taxes. 

These requirements are just the beginning, and refinancing certain types of debt, like mortgages, will have even more fine print standing in the way. Fortunately, SBG Funding makes the process easy with our three-step application process, making refinancing possible for a larger number of business owners.   

Explore your refinancing options with a tailored solution from SBG Funding. Contact us today to explore your options and refinance with a lender who doesn’t make you jump through hoops. 

When Is Refinancing the Right Choice?

While refinancing is a solid option for many business owners, it isn’t always the right time to apply for a new loan. Small business loan refinancing is not a good idea if doing so will create an unsustainable debt cycle, putting you in ever-increasing amounts of debt. 

It’s also not a good idea if market rates increase. Since March of 2022, the Fed has consistently raised rates in an effort to cool inflation. As of July 2024, there are no signs of lowering interest rates, meaning many business owners must consider if their needs outweigh the higher interest rates. 

Refinancing is, however, a good choice when market rates drop, creating lower interest rates and making it more affordable to obtain funding with higher loan amounts. It’s also a good idea if any of the following applies to you:

• Your personal credit or business credit scores are higher than when you applied for your initial loan. 
• You’ve been in business for longer. 
• You make more in annual revenue. 
• You’ve paid off some outstanding debt and improved your debt-to-income and debt-service coverage ratios. 

If you experience one or more of these situations, refinancing is a solid idea. It could free funds to make financial moves, business expansions, or investments. It can also help with your balance sheets, leaving more money left over each month to pay staff more or add to your pocket. 

Evaluating Your Current Loan

To know with confidence that refinancing your current business loan is a smart move, you must analyze it with a cost-benefit analysis. The five-step process is straightforward and provides invaluable insight into your refinance:

• Set a plan – Outline how you plan to weigh the costs and benefits, how long the evaluation should take, and what goals you plan to achieve with your refinance.
• Determine the costs – Explore what it would cost to refinance. Are there origination fees, prepayment penalties, closing costs, or administrative charges that you must consider?
• Outline the benefits – List the benefits of refinancing, including lower monthly payments, lower interest rates, or longer repayment schedules.
• Do the math – Calculate the costs of obtaining a new loan compared to your existing loan. Are you coming out ahead, or is it a wash? 
• Make recommendations – Although hard data is tough to dispute, you may need to consider other factors, such as the hit to your credit, difficulties with lenders, and potential pre-payment fees. 

Of course, some intangibles can push you in favor of refinancing, such as working with a lender that provides better service and support. SBG Funding, for instance, has a 5-star rating across thousands of reviews, attesting to our ability to deliver excellent customer service. 

Additionally, we have tools like the Funding Calculator tool that help you determine how much funding you need to achieve your financial goals. Plus, we can help you find tailor-made solutions that meet your business needs and get you refinanced into a loan with expert support!   

How to Simplify the Refinancing Process

When the time comes to apply for refinancing, following a few steps can make the process less demanding and time-consuming. These steps include:

1. Review your original loan details – Evaluate loan balances, interest rates, and remaining repayment terms. 
2. Create a business case – Establish your goals and reasons for refinancing.
3. Consider your qualifications – Explore your financial situation and determine your eligibility for various lending options.
4. Compare loan options – Analyze your current type of business loan and consider other business financing types, such as lump-sum short-term loans, merchant cash advances, business lines of credit, invoice factoring, or equipment loans. 
5. Gather loan documents – Compile required documentation. Some lenders require business plans, credit reports, and extensive reporting. SBG Funding requires four months of financial statements, a driver’s license, and a voided check. 

SBG Funding requires less documentation than other online lenders while also having a much simpler application process. It only takes three steps to apply for refinancing funds:

1. Fill out our online application.
2. Upload your documents and sign your loan agreement.
3. Receive funding in as little as 24 hours.

It’s because of lenders like SBG Funding that refinancing is no longer the scary word it once was. The process is easy, and we’re here every step of the way to ensure you get the funding you need to make your business a success. 

Make the Decision to Refinance with SBG Funding

Refinancing a current business loan is a strategic decision small business owners make that can lower current interest rates and monthly loan payments. In the long run, the savings can be significant, allowing you to tackle other projects with that money.

While the Federal Reserve’s increasing rates are making competitive borrowing rates more challenging, maintaining a healthier financial profile and longer operational history can significantly enhance the benefits of refinancing. 

Particularly in these tightening financial conditions, SBG Funding steps in to bridge the gap, recognizing that small businesses will continue to require accessible funding solutions. By refinancing with SBG, a lender that prioritizes your business’s needs, you can navigate these complex financial landscapes more effectively.

Partner with us to get tailored financial solutions perfect for your business needs. Or, fill out an application and get started today!