Refinancing: Getting a better deal on your finance

The last couple of years has brought significant turmoil for business. The Brexit, the coronavirus pandemic and subsequent government lockdowns meant that even the strongest companies have struggled to stay afloat. 

During these difficult economic times, many business owners turned to private finance to fill the gaps left by government funding and grants. The retail and hospitality industries, in particular, have struggled to maintain cash flow during this time of financial pressure, and, unfortunately, many businesses did not survive the pandemic. 

With hope on the horizon, it might be time to reconsider your finance arrangements and determine if they are working for you or if there is a better setup for your business. 

What is refinancing?

Refinancing is when you replace existing finance with a new product or combination of products. Typically, the new loan will pay off the current debt.

Perhaps your business plan has changed, or you can no longer meet the current loan terms... whatever your situation, there may be a more suitable finance product to help your business not just survive but thrive.

As the economy slowly recovers, many companies are ready to reassess their business debt. Refinancing is one of the most common ways to ensure your finance works for you rather than restricting you.

How refinancing works

Finance can make or break your business, so it's important to understand how it works before deciding if refinancing is right for you, now or in the future. One of the biggest problems facing businesses is cash flow. High monthly payments, restrictive terms, and a poor credit score all cause problems for businesses. Sometimes, refinancing can help ease the pressures of business debt and improve your overall circumstances. 

Most businesses have more than one finance product, such as a commercial mortgage, a business credit card and possibly even a bridging loan for short term support. Many business owners find themselves seeking new finance before assessing their existing arrangements.

By changing from your current lender, you might find that you are presented with better terms for your commercial loan, or you might even qualify for a different kind of finance altogether, like Merchant Cash Advance, which provides consistent income without the heavy repayment terms. 

So, if you have a business loan with repayments that are proving too expensive because of a seasonal downturn, you may be able to refinance. A new loan might offer better rates over a longer time with smaller repayments.

Refinancing can mean improved cash flow and increased working capital and deliver a reduction in costs.

To find out whether refinancing is right for your business purposes, get in touch with Rangewell today. We're independent, making us well-placed to assess the whole market and provide impartial advice and secure finance that will help your business grow.

Why refinance your business?

Refinancing is sometimes falsely seen as a last resort or an action taken only by struggling businesses. In reality, there are many reasons why a business might choose to refinance. To discover whether refinancing is right for you, we recommend contacting us and speaking to one of our expert advisors about your specific situation.

In the meantime, let's look at some of the most common reasons to refinance.

Reduced monthly commitment

Are you struggling to meet your current monthly payments? Or perhaps you simply find it difficult to manage cash flow or release profits to invest in other areas of your business. Having finance doesn't have to mean being strangled by high monthly payments.

Your existing finance arrangement may have been calculated based on circumstances that are no longer relevant. It might be that your projected income is lower because of the effects of the pandemic, or maybe you are now one of the many businesses facing higher utility bills. 

Whatever your circumstances, it's important to have finance that works for you - it should make your life easier, not harder. Refinancing can help reduce your monthly payments by improving your loan terms and/or spreading your payments across a longer period of time. 

Reduced interest costs

Lenders vary greatly in the interest they charge. Some types of lending, such as unsecured loans, may have relatively high rates of interest. By refinancing to a lower rate, and perhaps to a more suitable type of loan, it may be possible for your business to save on interest costs which can mean a reduction in monthly outgoings or help you pay off the principal - the amount you initially borrowed - faster.

Large, long-term loans can show the greatest potential savings if they are refinanced to a lower rate.

Changing the loan term

Extending the loan term can mean lower monthly payments and give you longer to repay the debt. Not only does this help to improve cash flow, but it might also open the doors to more finance opportunities to complement your existing setup.

However, you can also refinance your borrowing into a shorter term. This could reduce your overall repayments, and if you refinance to a better rate, it may even be possible to do it without increasing your monthly repayments. So, if being debt-free sooner is part of your business plan, then refinancing could help you get there. 

Consolidating debts 

Debt consolidation is one of the most common reasons to refinance your business. The more business debt you have, the harder it can be to grow. If you took out finance during the pandemic, then now might be a good time to revisit your financial commitments and determine whether the finance still meets your needs or if you are now eligible for different loan options. 

There is a wide range of ways to consolidate debt; it's not as simple as replacing several business loans with one new product. At Rangewell, we take a look at your full finance portfolio and determine what's working and what's not. Taking into account your business plan, current credit score and future plans, we can help you find out whether refinancing is right for you and how to best approach this process. 

Pay off a commitment 

Short term loans can help get you out of a difficult situation or even bridge a gap between finance products. Some finance products, such as balloon loans and bridging loans used alongside a property purchase, need to be repaid by a specific date. However, if you cannot repay this within the timeframe, you risk significantly higher terms and even penalties. 

If you think it might take you a little longer to pay off a short term business loan, don't wait until it's too late to tell your current lender. Speak to Rangewell today about your existing commitments and we will lay out your options to make sure you have all the information available to make the best decision for your business. 

For example, if you have a business loan that helped you set up the business. Refinancing the amount you owe into long-term debt can be simpler once your business has established itself.

Maintain your current commitments 

Even if you don’t lower your interest rate or monthly payment, it can make sense to refinance. If you have variable rate funding for a commercial mortgage, for example, switching to a fixed-rate loan may help you avoid increases.

Increase your borrowing 

If your business is doing well, you may want to increase your available funds to invest in new business assets or even a new venture. Rather than simply approaching existing lenders, it may be possible to refinance with another lender. They may be able to help you pay off your existing commitment and provide additional funds, leaving you with the additional funds you need and a single monthly repayment.

Change your loan type 

Changing circumstances may make one source of finance less suitable. So, you might have a loan that could be replaced with a Cash Advance based on your future sales or by an Invoice Finance arrangement.

Is refinancing for you?

Refinancing is a very technical process and requires the expertise and knowledge of industry experts to get it right. You don't want to risk refinancing to the wrong product and ending up in a worse situation than where you began. For that reason, we highly recommend seeking advice to determine whether refinancing is for you.

If you have existing debt and are struggling to meet monthly repayments, or took out finance or less favourable terms to get you through the pandemic, then it's worth talking to Rangewell about refinance. So, before you make a big lending decision or start a new loan application, get in touch with Rangewell's team of independent advisors today.

Refinance your business with Rangewell

At Rangewell, we know that every business is unique, so your finance should be tailored to your specific circumstances. We start by taking the time to understand your business and its goals. They will look at your business activity, cash flow and working capital, the challenges and opportunities you face, as well as your current and future ambitions.

From here, we will be able to determine the best refinancing solution to serve your business, looking at lenders available across the entire market to find those offering the most competitive terms.

Only then will we recommend a finance package tailored to your business and taking into account the type and structure of facilities you will need, not just for your current circumstances but for the future.

Want to find out if refinancing is right for you? Speak to Rangewell today.