Using a business loan to refinance existing borrowing could help you focus on what you do best – running your business.
It’s common for businesses to take on different forms of finance over time to meet varying needs. For example, a short-term loan to purchase a new piece of equipment, an overdraft to deal with seasonal cashflow issues, and a credit card for day-to-day spending.
However, having a variety of finance arrangements in place may mean the business has to manage multiple repayments, with varying interest rates, throughout each month. In addition, some forms of debt – particularly short-term options – can be expensive and weigh down the growth potential of the business.
Refinancing business debt
One strategy to simplify your current finance arrangements could be to refinance them with a business loan.
Refinancing could offer several benefits for your business, for example:
- Potentially lower interest rates: A new loan might offer a lower interest rate than your existing debt, reducing your borrowing costs and freeing up cashflow.
- Extended loan term: Refinancing can involve spreading your repayments over a longer period, lowering your monthly payments and making them more manageable.
- Consolidation: If you have multiple debts like credit cards or equipment loans, a business loan can consolidate them into one payment, simplifying your finances.
Before taking out a business loan, always consider the following points:
- Repayment terms: The length of time to repay a business loan can range from a few months to several years, so you’ll need to be mindful of the need to make ongoing monthly repayments during the term of the loan.
- Personal guarantees: If you provide a personal guarantee for a business loan, you’re personally liable to repay the debt if the business cannot do so. It’s important that you consider getting independent legal advice to ensure you understand the terms of any personal guarantee.
- Terms and conditions: If you breach any of the terms and conditions of a business loan, this could affect your business’s ability to borrow money again. For example, lenders will generally inform credit reference agencies when repayments are missed, so it’s important to understand the terms and conditions before you take out a loan and make sure you keep up with repayments.
A business loan can be a valuable tool to help manage your business. However, it’s important to make sure this is the right decision for you. If you ever find that you are in financial difficulty, you should let your lender know as soon as possible so they can work with you to find the best solution.
Find out more about business loans at LendingCrowd.
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