Business loans help provide your business with funds which are needed for smooth operations. The loans come in many variants with different repayment tenures and interest rates. Multiple lenders offer business loans at varying rates. It might happen that you find another lender offering you better terms and conditions on your loan after you have availed it. In such cases you can choose to refinance your business loan. Refinancing of business loans is a facility which is available and yet few of you have a complete understanding of it. So, here’s everything that you need to know about business loan refinance.
What is refinancing of the business loan?
Refinancing the business loan means changing your lender. It means transferring your existing business loan from one lender to another during the repayment tenure.
Why loan refinancing is done?
Refinancing of business loan is done in many circumstances. These circumstances include the following –
- To shift to a new lender offering lower interest rates – many times, due to the changes in the interest rates in the market, the interest under business loans might reduce. This reduction is offered under new loans. Moreover, there might be other lenders who offer business loans with lower interests. To get the benefit of these low interest rates you can opt for business loan refinance
- To increase or decrease the repayment tenure – you might want to change the repayment tenure of your existing loan based on your repayment suitability. For instance, if you face a financial burden, you might want to lower the EMI by increasing the loan tenure. For doing this too refinancing is sought wherein the loan becomes a new loan and you get the facility of fixing a new repayment tenure
- To consolidate your debt – if you have multiple business loans and want to consolidate all the loans into one loan for easy servicing, loan refinancing is done
- Changing the nature of the interest rate – another reason why refinancing is done is to shift from floating rate of interest to fixed one and vice-versa.
Things to consider before refinancing
Before you opt for refinancing the loan, here are a few things which you should keep in mind –
- Refinancing incurs a processing fee and a refinancing fee. This fee increases the cost of refinancing the loan. Always check the fees involved in refinancing and compare the cost of refinancing with the saving in interest rates. If the savings is more than the costs incurred, refinancing makes sense.
- Refinancing should be done in the initial years of the loan because in the initial years the interest component is high when repaying the loan. So, when you shift to a new lender with a lower interest rate, the savings would be considerable.
- Always compare the loan rates of different lenders online before you choose refinancing. The new lender should offer the lowest interest rate to make refinancing a prudent choice.
So, know everything about business loan refinancing and then get your loan refinanced for best benefits.