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Debt refinancing for small business

The pandemic forced many businesses to take on additional debt as they tried to survive. As the economy continues to recover, business owners may be looking for ways to better manage their debt. Refinancing debt is a good option for businesses who have a high debt load and want to increase cashflow by spending less per month on interest.

What is debt refinancing?

Debt refinancing is when a company decides to rework its debts to increase cash flow and improve liquidity. Typically, this involves consolidating which lowers the interest rate and/or lengthening the terms. Refinancing can be used by companies to improve rates, reduce debt, and prepare a business for a merger or buyout. It can also be a good option for companies looking to grow as the increased cash flow can allow them to focus on purchasing new equipment, real estate or hiring more employees.

The process usually involves consolidating debt into one loan. The benefits of this include:

  • Lower monthly payments

  • Lower interest rates

  • Possibly less frequent payments

Thinking about refinancing?

If you're thinking about refinancing your debt, here are a few things to consider.

Know your monthly budget

Before you begin thinking about refinancing you should have a good understanding of your monthly budget. This will help you determine how much debt you can pay off each month. Once you have your budget complete, you may find that eliminating some debts or consolidating loans will help improve monthly cash flow.

Look at your current debts

Before deciding which debts to refinance you should take inventory of what you currently owe, to who, and the interest rate. Pay special attention to loans with higher rates or unfavorable terms. Getting a lower rate or extending the loan terms could free up some of your cash flow to focus on other things.


Once you’ve narrowed down which debts you want to focus on, you should consider consolidating these into one loan. A consolidation loan can usually get you a better rate and a lower monthly payment. Consolidated debts are also more manageable as you can make one payment instead of paying multiple creditors.

Before consolidating you should take note the of the loans you want to consolidate and their rates so you can figure out what a blended rate would be for the new loan. This will give you an idea of what you need and help guide your conversation with your banker. You should also carefully look at loan terms, fees and possible early repayment penalties.

While debt refinancing can be positive, you’ll also want to consider if it’s the right option. You’ll want to confirm that your current loan doesn’t have a prepayment penalty. You may also temporarily lower your credit score as you are technically applying for additional loans. Lastly, the current interest rate environment may not be as favorable as when you received your original loan. Your banker can walk through these concerns and help you make the right choice.

Is debt refinancing the right move?

Refinancing your debt could be a great option for your business if you’re looking to lower the amount of interest you pay each month. It may not be as beneficial if the rate or payment is only slightly lower.

You should consider:

  • Refinancing costs: Loans typically include underwriting, origination and other fees, which can be up to 5% percent of the loan.

  • The current health of your business and credit.

  • If you’ll qualify for better rate and loan terms.

  • If your lender will need collateral or a personal guarantee to refinance the loan.

Your banker or financial partner can help guide you in the right direction. We recommend talking with them about your desire to refinance debt. They can provide you with a list of options to help make your debt more manageable and allow your business to do more with its cash.

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About Brandi Nelson

Brandi has worked in commercial banking since 2003. She builds long-term client relationships based on prudence, responsibility and trust while helping individuals, families, foundations and other organizations establish and meet their financial goals. By understanding your objectives and risk tolerances she will integrate cash and credit strategies into your wealth plan. Before assuming her current role, Brandi served as vice president of SBA lending at Falcon National Bank, SBA business development officer at U.S. Bank and prior to specializing in SBA served as a trusted commercial lender for 10+ years. Brandi holds a Business Administ...

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