When should you consider refinancing your Business Loan?15th January 2018
One of the fundamental aspects of running a successful business is ensuring that you have access to sufficient amounts of cash, which may not necessarily exist within your own accounts.
As such, whether it’s for stimulating growth or supporting your business finances you may, at various points, consider applying for a Business Loan.
Once a loan is approved and set-up, the temptation is often to just let it run its course. However, during the course of the agreement your business’ credit score, revenue or overall financial situation may significantly improve. If you’re currently signed up to a finance agreement that’s no longer representative of your business’ current financial performance, you could consider refinancing in order to gain a more favourable deal. If refinancing sounds like something your business could benefit from, here are 6 signs to suggest it could be an option:
- Has your credit score improved?
- Has your business now been trading for more than 2 years?
- Are you moving on from a previous insolvency?
- Is your business currently subject to multiple finance agreements?
- Could your business now justify a longer repayment term?
- Could your business get better terms and conditions elsewhere?
My business’ credit score has improved
When applying for most forms of business finance, lenders may review your business’ current credit score. This is an important part of the application process since it allows lenders to assess the potential risks which may be involved and will incorporate factors such as whether your business has any outstanding CCJs, arrears or Accelerated Payment Notices (APNs), along with your history of settling debt on time. If your business possesses a weak credit score, it may either lead to your application being rejected or your business having to pay more interest throughout the agreement.
If you managed to acquire a business finance agreement in the past, despite having a weak credit score, your business’ financial situation may have improved since. This may mean that your finance agreement is no longer representative of your current financial position, and you might qualify for a more beneficial finance solution elsewhere. In order to save your business money and pay a lower interest rate, it is worth considering refinancing.
My business now possesses a longer trading history
While you’re in the early stages of your business’ development, your trading history will be limited, restricting the number of funding opportunities that may be available to you. As your business grows and generates a longer-standing history, generally by reaching the two-year point, lenders will be able to gain a more comprehensive understanding of how well you’re performing. This may allow you to qualify for a wider range of business finance products. Plus, if you’ve begun to generate a profitable six-figure annual revenue, this will also encourage lenders to look more favourably on your business. If you’re already subject to an existing business finance solution that was established before you reached this point, the chances are that you might be able to obtain a far more favourable solution by refinancing.
My business is now less likely to become insolvent
If you’ve filed for insolvency in the past, you probably know that it will appear on your credit profile, causing lenders to adopt a cautious approach when coming to a decision. Becoming insolvent is never a pleasant situation to be in, but if you’ve been able to work your way out of it and successfully petitioned for a discharge, you can begin to rebuild your credit profile.
If you’ve managed to obtain a discharge and have reached a point where the insolvency no longer appears – which can be up to six years after the discharge – choosing to refinance any existing high-interest finance agreements could allow you to acquire a new finance solution with more favourable terms and conditions. So, although filing for insolvency can be devastating, it’s by no means the end of the road for your long-term business aspirations.
My business has multiple outstanding finance agreements
Although applying for business finance can be integral to stimulating growth, maintaining liquidity and pushing vital projects forward, you also need to be careful not to take on too much debt. Over time, you may accrue a number of small loans and finance agreements for reasons such as office equipment, vehicles and working capital to help fund your short and long-term goals. Although each one may have made sense at the time, you will now be making multiple repayments each month and putting pressure on your working capital. The total amount of interest you’ll be paying on the combined products may be very high too. By choosing to refinance each of these loans into one refinance agreement, you can combine the money that you owe into a single business finance solution with only one monthly repayment. This should result in your business paying out less money in total each month.
My business can now justify a longer-term solution
As well as helping you gain a lower interest rate, depending on your situation, refinancing an existing agreement could allow you to switch to a new agreement with a longer repayment term. While the total amount of interest you pay is likely to be higher, spreading out the amount owed over a longer period will reduce the size of your monthly repayments. This could be especially useful if you are currently struggling to keep up with a short-term business finance solution that your working capital cannot keep on top of.
My business could qualify for more favourable terms and conditions
Choosing to refinance essentially means setting up an entirely new business finance agreement to pay off the amount of money that you owe on any previous agreements. Although refinancing could be a great way of saving your business money, you need to weigh up the pros and cons before committing to this course of action. Some lenders may impose early repayment penalties when refinancing. Therefore, in order to tell whether your business could actually benefit from refinancing, calculate the total cost of these penalties and any other expenses you may be liable for, and balance them against how much money a new loan would save you in the long-run.
Thinking about refinancing an existing business finance agreement?
In order to expand, develop and run your day-to-day operations you must ensure that your business has enough capital to hand, which is why applying for external funding can be so crucial for scaling. But in the early stages, the finance options available are often limited, and you may have jumped in and accepted the first finance solution that could offer you the necessary funds.
As you have continued trading and gained a tangible presence in your sector, your funding opportunities will have expanded and there could now be a more favourable finance solution available to match your current situation and needs. If so, perhaps refinancing could provide the appropriate solution? If you’re looking to benefit from a lower interest rate, or merge the money that you owe across multiple products into a single finance solution, apply for a Refinance solution today or find out more with Rangewell.
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