When small businesses take out loans to help start or manage a business, business owners look for favorable interest rates and affordable terms. However, like personal loans, business loans are tied to bank interest rates and credit worthiness. When either of those factors change for the better, a business owner may wonder whether he or she qualifies to refinance business debt.
Fortunately, business loans are eligible for refinance, and doing so may make sense if applicants can secure an interest rate that is significantly lower than an existing one. Depending on the value of the business debt and the term length on the loan, refinancing business debt at a lower rate could save thousands of dollars in interest over the life of the loan.
Sometimes, business owners are not as interested in saving interest as they are in lowering monthly payment obligations. In those cases, some loan holders may choose to refinance a debt to a longer term. Although business owners ultimately pay more interest over time, the monthly payments on a loan with longer terms is a welcome break when finances are tight. And as an added bonus, business owners who refinance a business loan may qualify to skip one or two monthly payments before the new loan payments are due.
Useful Tips for Refinancing Your Business Loan
Before you rush off to refinance your business loan, there are some things you need to keep in mind. Make sure that when you review the terms for your new loan, you understand not only what your interest rate is, but also how much interest you will pay over the life of your loan. Factor in your application fees and other loan origination costs to ensure that refinancing is the right choice for you.
Also, if you choose to refinance through a lender other than your existing one, you may pay double interest until your new lender pays off your previous lender. Additionally, if your payoff balance was less than what you paid, you may not receive a refund check for the difference for up to one or two months after refinancing.