A few years ago, many small businesses were feeling the sting of the credit crunch and unable to secure traditional loans from banks and credit unions, they turned to alternative sources for funding. These alternative sources might have carried higher interest rates or less favorable terms in favor of quicker funding. Those days may be over for you and it might look now like a good time to refinance your business debt. Here are some questions to ask yourself if you believe debt refinancing might be a feasible option for you.
How High Is Your Current Interest Rate?
Obviously if your current rate is competitive, you might not qualify for one better enough to make a huge difference. However, take a look at your current interest rate and get some quotes for other loan products that you might consider and weigh the costs and benefits.
Where Are You at On Your Loan?
Look at the amortization schedule on your loan and where you are at in the life of your loan. On most loans, you will pay heavy interest charges up front and as your principal balance lessens, you will pay less in interest and more towards your principal. At this point, debt refinancing might mean trading a large principal payment for payments that are primarily interest.
What Is Your Credit Situation?
You might have relied on a good credit score to get your initial loan but maybe since then have let things slide a little bit. It is important when you are wanting to refinance business debt that you have a good credit score. Changes to your report will take several weeks and so consider this in your timeline for financing if there are errors on your credit report.
How Much Paperwork Can You Put Up with?
SBA-backed loans in particular require tremendous amounts of paperwork. Although to some this might seem like a trivial matter in the grand scheme of things, it is a genuine concern for some business owners who have neither the time or the patience to fill out several forms and applications for a benefit that may not be significant enough to outweigh the time costs.
What Are Your Closing Costs Going to Look Like?
Closing costs are clearly another major consideration. You might be interested in refinancing your loan but without capital on hand to pay closing costs, debt refinancing might be much easier said than done. Fees are 3% for loans up to $700,000 and jump to 3.5% for loans that are higher than that. You might have additional fees to pay on top of this, such as fees for an appraisal and ancillary costs.