Refinancing: Getting a better deal on your finance

Having the wrong financial arrangements can become a problem for your business. High repayments can eat into your working capital. Fortunately, there are solutions that can get your business back on track, and help you deal with your financial obligations, even if you find you are committed to a loan or other financial agreement with repayments that are simply too large for your cashflow.

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

It can mean improved cashflow and increased working capital, and deliver a reduction in costs.

How Refinancing works

Refinancing is simply the process of replacing an existing loan with a new financial arrangement.

The new loan pays off the current debt.

You will be faced with a new debt with a new lender, but your new debt should have better terms or features that are a better fit for your business, and which will improve your financial position.

Why Businesses Refinance

There are several potential benefits to refinancing.

Reduced monthly commitment

Getting monthly payments that are easier to manage from your cashflow is essential. In many cases, businesses take out a loan and believe that their projected income will be sufficient to cover it. If they are over-optimistic, or if business takes a downturn, those repayments could leave them with insufficient working capital.

When you refinance, you may be able to extend the time you’ll take to repay.  The new monthly payment should decrease -although you may find that extending the term of your loan will mean greater repayments overall.

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. This can mean easier cashflow management and more money available in the budget for other monthly expenses.

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.

Consolidating debts 

If you have several loans running at once, you may be able to consolidate them into a single loan. This can reduce your management burden, and could allow you to reduce overall outgoings if you can get a lower interest rate.

Pay off a commitment 

Some financial commitments, such as Balloon Loans and Bridging Loans used with property purchase, have to be repaid on a specific date. If you don’t have the funds available for a large lump-sum payment the only solution may be to refinance the loan and take more time to pay off the debt.

This can actually be a sound financial move, 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 the funds available to it. Rather than simply approaching existing lenders, it may be possible to refinance with another supplier. 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 which could be replaced with a Cash Advance based on your future sales, or by an Invoice Finance arrangement.

Can you Refinance?

Refinancing is suitable for businesses that are fundamentally sound, and simply want to look at more efficient ways to pay for the funding they need. If you can demonstrate that your business is profitable, and can have a history of making on-time payments for your existing borrowing, the chances are that we can help you find the refinance solution you need.

REAL EXAMPLES OF WHAT WE CAN DO

• Help arrange replacement funding to extend the loan term for an SME experiencing a cash shortfall

• Find the most competitive refinance arrangement for an engineering company facing additional costs

• Find finance to replace a commercial mortgage for an optician business buying its premises

• Source funding to allow a chip shop consolidate a series of loans into a single monthly payment

• Set up a refinance plan that would reduce the outgoings of an organic farm by 30%

How Rangewell can help you find the right Refinance solution

At Rangewell we know that every business is unique. Our financial experts will, therefore, work to understand your business. They will look at your cashflow and working capital, the challenges and opportunities you face, as well as your current and future ambitions.

We will work closely with you to see which kind of refinancing solution can best serve your business. Then we will look at the lenders available across the entire market to find those offering the most competitive terms.

Only then will we recommend a financial 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.