Businesses need asset finance loans to fill the gaps between cash flow and keep the production afloat. Due to high competition in the lending industry, lenders provide more flexibility and wide availability. With the expertise of the core needs of your business, you may realize that refinancing your current loans is a good option. The procedure of getting a new business loan to consolidate existing debts is known as refinancing. You need not disturb your financial cycle and can pay the instalments on new terms on the same scheduled date. All the debts will now be under one umbrella and thus easier to manage.
What are the ways to refinance short-term business finance?
You must assess your current situation before refinancing. Question yourself, is sticking to the existing loan beneficial for the company? Does the market have a financial product with better terms than yours? Can you achieve the business goals better with your current finances or a new loan? How much will it cost to get a new loan? Once you have all the answers, you are ready to look at the options for refinancing.
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Weigh the available options
The lending industry has become super competitive these days. There are plenty of second mortgage options available to choose from. There will be a new product now and then. The interest rates keep fluctuating. The interest rates in the market might be lesser than what you had taken earlier. You may discover a lender with much more favourable terms.
You can use a refinance calculator to weigh your options and help you through the process. It will convert the financial situation of your company into understandable figures. You can also seek advice from a financial broker on all the options you are analyzing. Get a loan that will suit you the most in the current situation. Remember that since you are refinancing, do not take risks.
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Clearance of older asset finance loans
The process begins with choosing a lender out of a bundle of options available. Once you accept the terms and conditions, the lender will start with the paperwork. The documentation process might not be that hectic this time since you have already done that before. However, make sure that you have everything ready in sequence. After all these formalities, the loan gets approved, and you will get the funds in the business bank account.
Use this short-term business finance to pay off all the existing debts. The new mortgage repayments will start from the end of the first month. You can talk to the lender and keep the repayment date the same as before. This way, you will not disturb the monthly cycle of the expenses. It is always better to align the repayment date with the cash flow. This time, you have one repayment date, and thus much more manageable than before.
Are there any benefits of refinancing a business loan?
Of course, refinancing a second mortgage can bring along many benefits.
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Get a loan at better terms.
The interest rates keep fluctuating in the market. Interest rates at this time can be lower or higher than the time you borrowed previously. Refinancing can bring better deals your way. You can use the portion of the money saved from interest elsewhere in the business. Apart from the interest rate, you may find a lender that does not charge additional fees, such as early repayment associated with the existing lender.
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Manage the debts better
Refinancing the asset finance loans bring all your existing debts under one roof. Instead of paying multiple instalments, pay only a single one at a fixed date. The lender has several repayment options available. The instalment can be auto-debited from your bank account every month. It will ensure you will not miss out on any repayment and harm your credit report.
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Free up your personal assets
Many business owners use their personal assets as collateral in the beginning stages. But as the business grows, it amasses some assets you can offer as security. So you can refinance a loan to free up your personal assets and instead use business assets as collateral.
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Enjoy the newfound equity.
Refinancing a second mortgage could allow you to access equity that has accrued in the value of your property over time.
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Get more flexibility
The lending industry has evolved a lot in these years. It will continue to grow further and become more competitive in the following years. As lenders understand the needs of modern businesses, they come up with more products. These products are more flexible and will yield higher productivity in your company. If you encounter any such product in the market, you can refinance for more flexibility.
Should you consider refinancing a business loan?
Is refinancing short-term business finance a good idea? The answer will never be the same in all situations. Consider refinancing when
- You get a better deal, such as a lower rate of interest
- Managing multiple debts becomes unmanageable
- The new loan costs you less than all the combined loans
- Refinancing benefits your business
Key Takeaway
The two ways to refinance your business loan are weighing the available options and clearing the existing debts. Analyze your business plan well before taking any initiative in this direction. Consider refinancing only if the total cost of the new loan is less than the combined cost of the existing debt.