The Benefits and Drawbacks of Refinancing Your Business Loan
You probably know that you can refinance your mortgage and car loan to get a better rate. But did you know that you can also refinance a business loan?
The process of refinancing a business loan differs from that of other types of mortgages, but these benefits may make it all worthwhile.
- Better Interest Rates – Interest rates fluctuate over time, for a variety of reasons. If the rates have lowered since you began your loan, you may be able to get a better rate and save money on your monthly payments.
- Debt Consolidation – Most business owners don’t need to spend more time tracking creditors and accounts. Refinancing can allow you to consolidate multiple debts, reducing several payments down to one.
- Equity Access – If you have earned equity during the term of your loan, you can get access to it when you refinance. You can use that equity to help fund the expansion of your business.
- Released Securities – Refinancing may allow you to change from a secured loan to an unsecured loan, giving you full control over the assets you were using for collateral.
However, there may be certain drawbacks to refinancing a business loan. Before refinancing, consider these potential issues.
- Refinancing may increase the term of your loan and add to the interest you’re paying overall.
- If you have a fixed-rate loan, you may be required to pay an exit fee when you close the loan to start a new one.
- To refinance, you will need to create a new business plan and apply for a new loan.
- Several fees may be involved in the refinancing process, including origination and valuation fees.