With small business lending picking up, and prime interest rates at an all time low, now could be a good time for small businesses to refinance existing business debt. Refinancing usually involves paying off one commercial loan with the proceeds of another, or extending the maturity date of an existing loan.
Reasons to Refinance Business Debt
- Better interest rate
- Consolidate business debt
- Reduce monthly payment
- Locking-in interest rate
- Take cash-out
- Avoid balloon payment
Refinancing Business Debt With a Bank Loan
Refinancing or consolidating through a bank is the most preferable of all the commercial financing options, being that banks have the lowest rates and longest terms of all business lenders. Most banks offer both fixes rate and rates adjusted to prime. A common reason for refinancing of business debt is to avoid a balloon payment
- Bank refinancing rates: 5-10%
- Bank refinancing terms: 1-10 years
With their low interest rates, a very low down payment requirement and extended, an SBA enhanced business loan is a very appealing financing option to small business owners.
SBA 7(a) Refinacing
SBA 7(a) refinancing can be used to refinance existing business debt, provided the new loan is secured with at least the same security as the old debt. If the SBA 7(a) loan is used to refinance a business acquisition, the maximum term is 10 years, and 25 years if the largest percentage of the business assets is real estate.
- SBA 7(a) Refinance Rates: 4.5-6.5%
- SBA 7(a) Refinance Terms: 7-25 years
SBA 504 Refinacing
SBA 504 refinancing of business debt is available to any eligible small business planning an expansion (acquisition, construction, building or acquiring business equipment) may refinance provided the amount being refinanced is 1/3 or less of the project’s total cost.
- SBA 504 Refinance Rates: 4.5-6%
- SBA 504 Refinance Terms: 10-20 years
Equipment sale and leaseback is the sale of business equipment for a lump sum (usually up to 70% of the original price) and the leasing of the equipment back to the small business for a period of time. At the end of the term the seller will usually retains ownership.
- Equipment Sale Leaseback Rates: 5-20%
- Equipment Sale Leaseback Terms: 1-5 years
Alternative Business Loan Refinancing
If you have taken a merchant cash advance to help fund your small business, finding additional financing to cover working capital needs can be very hard to find. Being that you have a lien placed on the business’s assets, getting another lender to take a 2nd position can be difficult to find. Even when you do find a commercial lender willing to take a 2nd position, the rates can be exorbitant.
An option can be to have another lender buy out your merchant cash advance, and lend you additional working capital to finance your business needs.
- Alternative Refinance Rates: 9-50%
- Alternative Refinance Terms: 4 months to 5 years