5 Steps to Refinance a Business Loan

Just like a mortgage or personal loan, a business owner might choose to refinance a business loan for lower rates or better terms. But before choosing that route, make sure to consider these tips.

Set Refinancing Goals

Before deciding to refinance, it’s crucial to identify your objectives. For many business owners, the primary aim of refinancing is to secure a lower interest rate, which will result in lower monthly payments. It is not advisable to refinance if the current rate is higher.

Another potential refinancing objective is to extend the amortization period, which can help manage cash flow and lower payments. However, this approach simply increases the overall debt.

Understand How Much You Owe on Existing Loan

Understanding how much you owe on your existing loan will help you determine the equity you have in your business. Equity is the difference between the value of your assets and the amount of debt you owe, and it’s a critical factor in determining your eligibility for refinancing.

If you owe more than your assets are worth, you may have difficulty qualifying for a refinance or may not be able to get favorable terms. However, if you have significant equity in your business, you may be able to use it to secure better rates and terms when refinancing.

If you only have a small balance plus capital, you might consider paying off the loan. However, if you don’t have any capital, you may need to better your rate to build up additional monthly cash flow. Knowing the exact amount you owe on your existing loan will also help you determine how much additional funds you may be able to borrow through refinancing, which can be helpful if you need additional capital to invest in your business or cover expenses.

Evaluate the Type of Loan Your Business Qualifies For

When considering refinancing, a lender will evaluate several factors. For example, some loans may require a higher credit score or a longer business history than others. By evaluating the type of loan your business qualifies for, you can ensure that you’re applying for loans that you’re eligible for, which can save you time and prevent unnecessary rejections.

Different types of loans also come with different interest rates. For example, secured loans (loans that are backed by collateral) generally have lower interest rates than unsecured loans (loans that aren’t backed by collateral). By evaluating the type of loan your business qualifies for, you can identify loans with the most favorable interest rates, which can save you money over the life of the loan

Repayment terms also vary depending on the type of loan. The length of the loan, the frequency of payments, and the flexibility to make extra payments or pay off the loan early are important when evaluating a loan request. By assessing the type of loan your business qualifies for, you can select a loan that has repayment terms that best fit your business’ needs and budget.

If your company is a startup, a lender may ask for a business plan with the description of the business and financial projections. Lenders will research industry and market trends, which helps them determine the level of risk in offering a loan. Lenders want to see that the borrower has a solid business, good financials, and the ability to generate revenues and service the debt.

Research Lenders

Different lenders have different lending policies, requirements, and products to offer. Some businesses may want a local lender for a more personal relationship. This is something PlainsCapital prides itself in.

Some banks may be willing to take more risks than others but may charge a higher rate. The reputation of the bank is also important to consider. Are they reliable and stable?

Building a solid relationship with a bank can be very beneficial to a business in the long run. Having a good rapport and a good banking relationship can lead to favorable loan terms in the future.

Prepare to Submit Application

When it’s time to submit your refinancing application, there’s typically a list that borrowers are required to provide for any loan.

The documents needed will depend on the type of loan you’re refinancing, but here’s an example.

• Credit score/history
• Corporate Documents
• Financial statements (Balance Sheet, Cash Flow statements, Profit & Loss)
• Tax Returns
• Collateral information
• Property appraisal (if it’s real estate)

PlainsCapital Bank has a dedicated team of lenders willing and available to help you refinance your business loan. You can contact Alvaro De La Garza directly at 956.544.3606 or alvaro.delagarza@plainscapital.com to discuss your business’ goals.