Types of Business Loans: Everything a Small Business Owner Needs to Know About Refinancing Their Business Debt

small business loan refinance

Have you ever had business bills to pay but no cash in your bank account to cover them? What do you do?

This is a difficult question to answer if you are not intimately familiar with your business’s financial statements.  As an entrepreneur, the quick and obvious answer is to generate revenue by the time your bills are due, but that’s not always possible. 

Having a clear understanding of your business financials and cash flow cycle will give insight into what you can do to create more accessible cash for your business on a monthly basis. Taking a closer look at your current debt and what it is costing your business is a critical step in this process. High cost debt can often be debilitating and leave you without cash to invest back into the operations of your business. Think inventory, payroll, and other operational expenses. If you’re struggling with cash flow issues, the best solution may be to consider refinancing your high-cost business debt.

The benefits of refinancing business debt

There are three great reasons to refinance business debt. You’ll immediately lower your monthly payments, save money over time because of lower interest rates, and improve your credit score which will help you qualify for lower cost loan options.

small business loan refinance

  • Lower Monthly Payments: When you refinance business debt, you’ll immediately benefit from lower monthly payments. A well-structured refinance can cut your monthly payment by 50% to 80%. With lower monthly payments, your business will improve its cash flow and have more money to invest in itself.

  • Lower Interest Rates: Another good reason to refinance business debt is to decrease your interest rate and therefore the total cost of your loan. High interest rate debt can keep you paying for longer periods of time. Some businesses are even forced to extend the term of their loan, which can incapacitate a business to the point of bankruptcy. However, with a loan that has more affordable rates, the business will be able to save money and, in some cases, apply those savings to pay off the debt principal. This results in a shorter payment term.

  • Higher Credit Score: Having multiple loans and maxed out credit cards can significantly impact your credit score. And a low credit score is one of the main obstacles for not obtaining affordable loans in the first place. By paying off high cost business credit cards and loans, you will improve your credit score by reducing your credit utilization ratio (the amount you owe vs. the total amount of credit available to you).

When to refinance business debt

Refinancing business debt when you qualify for a lower cost loan is a no brainer. However, keep in mind that there will be closing costs for a refinance, as you would with a regular loan. Make sure to review all the different features and costs of your new loan including:

  • Total cost and terms,

  • Annual interest rate,

  • Total finance charge,

  • Service fee,

  • Debt reduction fee,

  • Listing fee,

  • and closing costs.

If the cost of the new loan is lower than your current one, now is the time to refinance your existing business debt. Be particularly careful about evaluating your new closing costs. These costs vary by lender and are typically 3% to 6% of the total loan amount. Do your math and make sure that the refinance’s savings are higher than the costs associated with the refinance.

You can learn more about reasons to refinance business debt here.

Your options to refinance business debt

  • Bank term loans and lines of credit: Some banks can refinance business debt as part of a larger loan. Traditionally, small businesses relied on their local banks for lines of credit, loans and refinances. However, in recent years, banks significantly increased their loan requirements, making it harder for businesses to refinance debt.  However, if you experience difficulty borrowing from a bank, SBA loans and loans from alternative lenders might be a good option.

  • SBA loans: The U.S Small Business Administration (SBA) offers special lending programs for small businesses that do not qualify for traditional financing. While the SBA does not provide the loans directly to the business owner, it provides loan guarantees to lenders. This guarantee gives lenders the ability to take on more risky businesses. You may have heard of the SBA 7(a), Community Advantage and Grow loans. These loans have a variety of loan purposes, including debt refinance.

  • Alternative lenders: There are a variety of non-bank alternative lenders that are working with small business owners these days. It can be tough to find a reputable one, so we recommend working with a Community Development Financial Institution, or CDFI.  These are mostly non-profit organizations that provide smaller dollar amount loans to businesses that do not fit conventional banking criteria.

Excelsior Growth Fund is a CDFI that offers the speed and efficiency business owners need when looking to refinance business debt. About 40% of the loans we provide are to refinance debt. And, each debt refinance loan we provide helps reduce monthy debt payments by an average of $6,300. Check out Excelsior Growth Fund’s SmartLoan, which offers loans up to $100,000 with affordable monthly payments.

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About Excelsior Growth Fund

Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more atwww.excelsiorgrowthfund.org