Every business stands to benefit from a smart business debt refinance plan. It can help you grow your company or even just keep the doors open for another day. If you're struggling with loan payments, refinancing your debt can improve your long-term prospects. And what business doesn't want that?
By reducing your interest rates and trimming your outstanding loan payments, you'll be able to get out of that vicious cycle of debt. By bringing in more capital, refinancing can also unlock equity or cash flow.
Here we have identified four key elements for successfully refinancing a small business loan:
Make Sure the Math Makes Sense
Saving money is the point of refinancing. You want to wind up paying less for your debt load, not more. So, when you consider this lending solution, be sure to do your homework by considering the interest rates, the closing costs and any associated fees that come with the loan. You'll also have to factor in the timeframe, which can vary from a couple of weeks with an alternative lender to a year if you are applying for an Small Business Administration (SBA) loan.
Communicate With Your Lender
Transparency is absolutely essential in the lending world. Borrowers and lenders can both benefit from the best practices of responsible lending by creating a mutual understanding of their capabilities, strengths and witnesses. Borrowers want to work with lenders who have a solid reputation. Lenders need to know that the borrower is trustworthy. Transparency is one of the goals championed by the Business Borrowers’ Bill of Rights recently adopted by the Responsible Lending Coalition, which aims to improve the lending process for everyone involved.
Ask About Potential Fees Or Penalties
To ensure responsible and transparent lending, full disclosure is key. Before borrowers refinance their debt, they should get a detailed summary of the fees and penalties that they might incur. It is the lender's duty to disclose this information. It ensures that the process stays within legal guidelines, but just as importantly, it enables the borrower to fully understand the terms and improve the likelihood that they'll be able to repay the loan on time. If the rates and conditions are too onerous, the borrower should not consider refinancing their debt with that lender.
Work With the Right Lender
Each scenario is unique. For every happy occurrence when borrower and lender work together easily, there comes a cautionary tale of woe from the lending world. Finding the right lender for the right borrower is easier said than done. Risk and personality can both play a role in this relationship.
Lenders have different capabilities and preferences, as well as their own terms, conditions and even collateral requirements. It behooves the borrower to discover what the criteria are before proceeding.
By studying these four points, you'll be sure to come up with a smart business refinance plan to reign in your debt. We hope you'll consider us when you're ready.