By Meredith Wood

If you’ve taken on a merchant cash advance or a short-term loan for your business, then you’re probably well-acquainted with the “perils of short-term business loans.” The daily payments and sky-high APRs that short-term business funding typically come with can be hard on a small business’s finances.

Luckily, refinancing this short-term funding can get you out of these expensive terms. By refinancing business debt, business owners can take on more affordable business loans to pay off short-term, expensive debt.

And though refinancing business debt can make repaying your debt more manageable, it also means paying more interest on top of interest, so a business owner should definitely think long and hard about a business loan refinance.

What to Consider

To make the right decision about refinancing your business debt, you’ll need to zoom out and take in a panorama of your financial information. So, before you look into your business loan refinancing options, take some time to pull together pertinent information.

All of these details will allow you to make the best decision possible on whether or not you should refinance your business debt—and will make the process much smoother should you decide to go ahead with business loan refinancing:

Your Current Debt

Most importantly, you’ll need to look into the details on your current business debt. If you’ve got more than one form of business debt, you’ll may benefit from a form of business loan refinancing called small business loan consolidation, which is refinancing multiple loans with one, low-interest loan.

But, whether you’re looking for a simple, single-loan refinance or to consolidate multiple forms of business debt, you should compile all of the following information on each of your forms of business debt:

  • How much you owe: Calculate your total business debt, along with how much you owe for each individual form of debt of you have multiple. This will provide you with the baseline amount that you’ll need to refinance.
  • Frequency of scheduled payments: Are you paying on a daily, weekly, or monthly basis? If you’re paying on a daily basis, then refinancing this short-term debt with a loan that has a weekly or even monthly remittance schedule could make paying down your debt more manageable.
  • Payment amount: How much you have to pay towards your debt, in tandem with your payment frequency, will allow you to easily quantify just how expensive the debt you hope to refinance is.
  • Prepayment penalties: Many short-term lenders will add on fees to their loans that will charge you extra for paying off your debt early. If you refinance a short-term loan, you’ll need to include any sort of prepayment fee in your payoff cost.

With all of these stats top of mind, you’ll have a solid idea of precisely how expensive or affordable your current business debt is—and whether any of your refinancing options are worth your time.

Look At Your Financial Credentials

Next, you’ll need to take a look at your financial credentials. As you likely learned while applying for your initial business loan, both your personal and business finances will determine what kind of financing you qualify for.

Have your financial credentials improved since you applied for your initial business loan or loans? Take a look at how the following stats measure up:

  • Time in business: Consider how much time in business you’ve accumulated since you first took on debt. Especially if you’ve passed an important threshold, like one year in business, being an older business than you were can strengthen your business loan application.
  • Business credit: Has repaying your current business debt hurt or helped your business credit? Most likely, if your current lender reports to business credit bureaus and you’ve repaid on schedule, your business credit will have improved since you applied for your initial loan.
  • Personal credit: Similarly, some short-term business lenders will report your repayment activity to personal credit bureaus. Check in on your personal credit score—if it has improved since you applied for your current funding, then you could be in the running for a worthwhile refinance.
  • Annual revenue: Finally, look into your business revenue. Have your monthly sales skyrocketed since you took on your initial business funding? If so, then longer-term lenders could be more eager to lend to your business since it has more free-flowing cash to address debt repayment.

Altogether, while checking in on your financial stats, you’ll want to see what’s changed since you applied for the business loan that you want to now refinance. If they’ve improved across the board, then things look good for finding a more affordable source of funding to pay down your current debt.

How Much Time You Can Wait to Refinance

Last, you’ll need to decide how much time you’re willing to wait to refinance your business loan. As a rule, longer-term business loans will be more affordable than short-term business loans, but they’ll also generally take longer to fund.

Perhaps that’s why you found yourself with the loan that you hope to refinance—many business owners needs cash quickly, and take on an expensive but quick-to-fund short-term loan in order to address pressing capital needs.

The longer you’re willing to wait on application and underwriting processes, the more long-term funding options open up.

Check Your Refinancing Options

In fact, the three best options for refinancing your business loans are also the three business loans that tend to take the longest to fund.

SBA Loans

SBA loans are bank loans that the Small Business Administration partially guarantees. As a result of the mitigated risk that the SBA partial guarantee provides, SBA lenders are able to provide small businesses with low-interest, long-term business loans that are ideal for refinancing expensive debt.

Though qualifying for an SBA loan will require a solid amount of time and paperwork, this loan refinancing option offers repayment terms of 5 – 25 years that could very well be worth the effort.

Traditional Bank Loans

If you’re able to qualify for them, then traditional bank business loans could be your most affordable business loan options. These low-interest business loans come with monthly repayment schedules and interest rates as low as 4%.

Nonetheless, they’ll be even more difficult to qualify for than SBA loans—without that partial guarantee from the SBA, banks are typically hesitant to provide small business loans, as they require the same resources but earn them much less money than big-business loans.

If you’re interested in refinancing with a traditional business loan from a bank, make sure your credentials are ship-shape before you take the time to apply.

Medium-Term Loans

Finally, if you’re eager to refinance as soon as possible, consider taking on a medium-term loan from an alternative small business lender. Though these loans won’t be able to offer rates as low as SBA loans and bank loans are able to offer, they’re still remarkably affordable, and they’ll require much less time and effort to fund. In fact, alternative lenders can often fund as quickly as two days after receiving your application.

Not to mention, they’ll be much more accessible for most business owners—while only the most qualified business owners will be able to refinance with SBA loans and bank loans, medium-term loans from alternative lenders will be an option for a wider demographic.

Determining Whether You Should Refinance Your Business Debt

If you’ve followed all of these pointers, you’re well-equipped with all of the information to decide whether or not you should continue on in your efforts to refinance your business debt. You’ve got all the information you need about yourself and your debt, but there’s still lots to learn about your refinancing options. You’ve got an idea of your three best options—SBA loans, bank loans, and medium-term loans. Now, it’s time to pursue the details.

Only when you apply for debt refinancing will you know the exact terms and fees your refinancing will come with—and whether refinancing will indeed save your business enough time and money.

Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. Meredith is also the Senior Financial and B2B Correspondent for AlleyWire.


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