Business Loan Refinancing: Lower Your Payments

Business loan refinancing means replacing your existing business debt with a new loan—ideally at better terms. Think of it as a "do-over" for bad debt decisions. If you took out a loan when your credit was poor or accepted high-interest financing because you were desperate, refinancing can save thousands per month.

What Is Business Loan Refinancing?

Refinancing replaces one or more existing loans with a new loan. The new lender pays off your old debt, and you make payments to the new lender instead.

Key Benefits:

• Lower interest rate: Reduce from 18% to 8% and save $15K+ per year
• Lower monthly payment: Extend term to reduce cash flow strain
• Consolidate multiple debts: Replace 5 payments with 1 simpler payment
• Remove personal guarantee: Shift from personally guaranteed to business-only
• Better terms: No prepayment penalty, no daily ACH withdrawals

When to Consider Refinancing

• Your credit has improved: 50+ point increase since original loan
• Your business has grown: Higher revenue supports better qualification
• Interest rates have dropped: Market rates lower than when you borrowed
• You have high-interest debt: Paying 15%+ on business loans or credit cards
• Multiple debt payments: 3+ separate debts you can consolidate
• Cash flow problems: Monthly payments too high, need to extend terms
• Got desperate financing: Took MCA or high-interest loan when options were limited

What Can You Refinance?

Qualification Requirements

Refinancing requires better financial position than when you originally borrowed:

Credit Score

• 680+: Best rates (7-10%)
• 650-679: Good rates (10-15%)
• 600-649: Fair rates (15-20%)
• Below 600: Very difficult to refinance

Time in Business

• 2+ years: Standard qualification
• 1-2 years: More difficult, higher rates
• Under 1 year: Usually can't refinance yet

Annual Revenue

• $250K+: Most lenders require minimum
• $500K+: Better rates and terms
• $1M+: Access to premium refinancing products

Debt Service Coverage Ratio (DSCR)

Lenders want to see you can afford new loan payments:

• 1.25+: Standard requirement (income 25% higher than debt payments)
• 1.15-1.24: Marginal, may get approved at higher rate
• Below 1.15: Difficult to qualify

DSCR Formula: Net Operating Income ÷ Total Debt Service = DSCR

Example: $150,000 net income ÷ $100,000 annual debt payments = 1.5 DSCR ✓

Types of Refinancing Loans

1. SBA 7(a) Refinance

Best For: Refinancing existing SBA loans or non-SBA debt

• Loan Amount: Up to $5 million
• Interest Rate: Prime + 2.25% to 4.75% (currently 11-14%)
• Term: Up to 10 years (25 for real estate)
• Qualification: 680+ credit, 2+ years in business, profitable
• Pros: Lower rates than conventional, long terms
• Cons: Slow process (2-3 months), lots of documentation, personal guarantee required

2. Conventional Bank Term Loan

Best For: Established businesses with strong financials

• Loan Amount: $50,000-$5 million+
• Interest Rate: 8-15%
• Term: 3-10 years
• Qualification: 700+ credit, $500K+ revenue, profitable
• Pros: Competitive rates, established lenders
• Cons: Strict qualification, requires collateral

3. Online Lender Term Loan

Best For: Faster approval, less perfect credit

• Loan Amount: $25,000-$500,000
• Interest Rate: 10-30%
• Term: 1-5 years
• Qualification: 600+ credit, 1+ year in business
• Pros: Fast funding (days not months), easier qualification
• Cons: Higher rates than banks, shorter terms
• Lenders: Bluevine, OnDeck, Kabbage, Fundbox

4. Business Line of Credit (for Revolving Debt)

Best For: Refinancing credit card debt

• Credit Amount: $10,000-$250,000
• Interest Rate: 10-25%
• Term: Revolving (ongoing)
• Pros: Only pay interest on what you use, flexibility
• Cons: Variable rates, can be revoked

5. Equipment Refinancing

Best For: Refinancing equipment loans specifically

• Loan Amount: Up to 90% of equipment value
• Interest Rate: 8-20%
• Term: Matches equipment useful life
• Qualification: Equipment must have resale value

Refinancing Process: Step by Step

Step 1: Calculate Your Savings

Use our debt calculator to see if refinancing makes sense.

Example Calculation:

• Current debt: $200,000 at 18% over 5 years = $5,091/month
• Refinance option: $200,000 at 10% over 7 years = $3,325/month
• Monthly savings: $1,766
• Annual savings: $21,192

Note: Extending term from 5 to 7 years means paying more total interest, but improves cash flow.

Step 2: Check Your Qualification

Pull your business and personal credit reports:

• Personal credit: AnnualCreditReport.com (free), Credit Karma (free with score)
• Business credit: Dun & Bradstreet, Experian Business, Equifax Business

Gather financial documents:

• 2 years of business tax returns
• Profit & Loss statements (last 2 years + YTD)
• Balance sheet
• Bank statements (3-6 months)
• Current loan statements and payoff quotes

Step 3: Shop Multiple Lenders

Where to Look:

• Your current bank: Existing relationship helps
• Local credit unions: Often better rates than big banks
• SBA lenders: Search at sba.gov/lender
• Online lenders: Fundera, Lendio (comparison platforms)
• Alternative lenders: OnDeck, Bluevine, Kabbage

Get at least 3 quotes to compare:

• Interest rate (APR)
• Monthly payment
• Total cost of loan
• Origination fees
• Prepayment penalties
• Personal guarantee required?

Step 4: Apply

Most applications require:

• Business and personal information
• Loan purpose (debt refinancing/consolidation)
• Financial documents
• Details on existing debts to be refinanced

Timeline: SBA loans take 60-90 days. Online lenders can fund in 3-7 days.

Step 5: Review and Accept Terms

Key Items to Review:

• APR: True cost including all fees
• Origination fee: 1-5% of loan amount (sometimes rolled into loan)
• Prepayment penalty: Avoid if possible (limits flexibility)
• Personal guarantee: Are you personally liable?
• Collateral: What assets are you pledging?
• Covenants: Financial requirements you must maintain

Step 6: Close and Payoff Old Debts

Once approved:

• New lender gets payoff quotes from old lenders
• New lender pays old debts directly (or gives you funds to do so)
• Ensure old accounts show "paid in full" on credit report
• Request lien releases if applicable

Real Refinancing Examples

Example 1: MCA to Term Loan

Before:

• Merchant Cash Advance: $75,000 borrowed
• Payback amount: $100,000 (33% fee)
• Daily ACH: $500/day for 200 days
• Effective APR: 65%

After Refinancing:

• Term loan: $75,000 (paid off MCA immediately)
• Rate: 12% APR
• Term: 3 years
• Monthly payment: $2,494
• Total interest: $14,784 (vs $25,000 MCA fee)
• Savings: $10,216

Example 2: Multiple Credit Cards Consolidated

Before:

• Card 1: $30,000 at 19.99%, $750/month minimum
• Card 2: $25,000 at 21.99%, $625/month minimum
• Card 3: $20,000 at 17.99%, $500/month minimum
• Total: $75,000 debt, $1,875/month payments

After Refinancing:

• Business term loan: $75,000 at 11% for 5 years
• Monthly payment: $1,634
• Monthly savings: $241
• Interest savings over 5 years: $23,460

Example 3: High-Interest Term Loan Refi

Before:

• Original loan: $150,000 at 16% (took when credit was 620)
• Current balance: $110,000 remaining
• Monthly payment: $3,200

After Refinancing (Credit Now 690):

• New loan: $110,000 at 9.5%
• Term: 5 years
• Monthly payment: $2,302
• Monthly savings: $898
• Total savings: $53,880 over life of loan

Costs of Refinancing

Refinancing isn't free. Factor in:

• Origination fee: 1-5% of loan amount ($1,000-$5,000 on $100K loan)
• Prepayment penalty on old loan: Some loans charge fee to pay off early (1-3% of balance)
• Application fees: $0-500
• Appraisal/valuation: $500-2,000 (if collateral involved)
• Legal fees: $500-2,000 (for complex transactions)

Break-Even Analysis:

Calculate how long to recoup refinancing costs:

• Total refinancing costs: $3,000
• Monthly savings: $500
• Break-even: 6 months

If you'll keep the business operating for longer than break-even period, refinancing makes sense.

Refinancing vs. Other Options

Common Mistakes to Avoid

• Not shopping around: Get at least 3 quotes. Rates vary widely.
• Only looking at monthly payment: Lower payment via longer term = more total interest
• Ignoring fees: $5,000 origination fee negates first year of savings
• Refinancing too often: Each application is hard credit inquiry. Space out by 6+ months.
• Not reading fine print: Prepayment penalties, variable rates, balloon payments can surprise you
• Extending term too long: 10-year loan on equipment that lasts 5 years is risky
• Pledging unnecessary collateral: Don't secure an unsecured loan unless rate savings are huge

When NOT to Refinance

• You're near payoff: If 12-18 months left, closing costs aren't worth it
• Your credit has worsened: You won't qualify for better rates
• Business is struggling: Refinancing won't fix fundamental problems
• You'll close soon: If selling/closing business within a year, don't refinance
• Fees exceed savings: Run the break-even math

Frequently Asked Questions