What made you apply for a Small Business Loan in the first place? Were you new to the small business industry and needed cash flow to make a name in the market? If this a case, then we are certain you settled for whatever was given to you. If you think the interest rate is too high and it is getting hard for you to meet the payment terms, now is the time to revisit the small business loan terms – consider refinancing you pending debts.
The denotation of ‘Refinancing a small business loan’
In simpler terms, refinancing the outstanding debt or refinancing a business loan means you are at the hunt for a brand new business loan with lower APR and convenient payments. Most business managers refinance SBA loans and traditional loans. If you get another loan, you have enough funds to clear off the pending debt in the form of one single payment. Apart from this, refinancing a small business loan means you can experiment with a different funding option. If in the past you have applied for a working capital loan to bear the short-term expenditures, this time you can try another lender and apply for a different loan – lines of credit, a merchant cash advance or an equipment financing.
The goal behind refinancing is to eradicate the financial worry from your mind, not to increase it two times. Moreover, your business was in the initial stages when you applied for a business loan the first time, now that you have been running it for quite some time and worked hard to improve credit score, you stand a chance of getting a loan.
So, before you decide to go on with this plan, study various steps you have to go through and explore the benefits of refinancing a small business loan.
- What is the goal behind refinancing?
Knowing why you are applying for refinancing will help you choose the right business loan. For example, if you need to repair your Kitchen Aid beater, you will apply for the equipment financing instead of getting a Merchant Cash Advance, again. Another example, you started your restaurant business and you applied for a working capital loan to cover the expenses like payroll, employees training, equipment, and furniture shopping. Now you didn’t have a steady income and no collateral to offer, so the potential lender offered you the loan with a high rate. Now that you are doing well in running a restaurant, and thinking about expanding you can get funding with better financial terms because of your improved financial condition. Refinancing at this point can help your business in so many ways:
- Reduction in the number of monthly payments, annual percentage rate, and total cost of the loan.
- You can merge multiple funding options.
- You can choose your payment schedule.
With these goals in mind, you can turn the deal in your favor.
- Conduct a detailed analysis of your financials.
Reviewing your financial position will give you a reality check, it will boost your aspirations or stop you from financially worsening your business, by applying for a loan. Start reviewing your operating income, basically it is an amount left after subtracting the operation cost from the annual revenue, Profit and Loss statement provides that information. Secondly, your balance sheet gives a precise overview of your assets and liabilities. As the chance of loan approval is higher if you offer some collateral to the lender. With a glance at the sheet, you can easily pick collateral.
After this, a look at the bank statement holds importance as well. Lenders offer affordable small business loans to borrowers with a steady income. No to sound like a broken record, lenders judge a loan application on the basis of the borrower’s business and personal credit score. If your credit score is higher than 680, the funds will be knocking at your door in two to three days, but if it is below than this, you must not waste your money and time on refinancing debts. So, assess your financial report before applying for the loan.
- Make a wise pick!
After reviewing financial credentials, you know where you stand. So, explore the lending institutions and choose a lender that will help you recover financially. Don’t get confused with the multiple options, stick to your business plan, and choose between a small business administration loan and an alternative term loan. An SBA loan is cheaper than a term loan, but if you need fast funding, then a term loan is a suitable funding option.
- Apply away!
As compared to alternative loans, traditional loans lender asks for a number of documents. If you’re fulfilling the criteria for an alternative small business loan, then save some time and apply away!
The list of the required documents is as follows:
- Bank Statements
- Financial Statements
- Business & Personal Tax Returns
- Driving License
- Strategic Business Plan
- Business Debt Schedule
Factors that limit the chance of refinancing a small business loan
If your business has not shown any growth since you applied for a small business loan, it will be challenging for you to refinance a small business loan at an affordable price. So, if you are caught up in any of the following situations, you need to think about refinancing some other time:
- A poor credit score does not look good on your loan application.
- Bankruptcy pushes lenders away.
- Banks and alternative lenders are hesitant to refinance startups.
- Inconsistent and unsteady cash flow makes you look like a risky borrower.
Give some time, thought to your small business, and apply for refinancing with a strong financial condition. If you think you are ready, then head over to our website and choose from dozens of small business loan. For more information and refinancing tips, like us on Facebook at (@Onlinecheck) and follow us on Twitter (@Onlinecheck). If you have any question, feel free to call us on our toll-free number at (833) 827-4412, our loyal and keen financial advisor will answer your every question and guide you throughout the way.