Refinancing means replacing existing borrowing with a new facility, either from your current lender or a different one. Businesses do it to reduce costs, simplify repayments or change the shape of their debt to suit how they now trade. It can be a sensible move, but it isn’t automatically a saving, and the details decide whether it is worth doing.
Signs it may be worth looking at
- Your business is in a stronger position than when the original loan was agreed, with better accounts and a longer track record.
- You have several facilities with different lenders and repayment dates, and managing them is taking time and causing pressure.
- You took short-term or expensive finance to solve an urgent problem that has now passed.
- Monthly repayments are too high for current cash flow and a longer term would make them manageable.
- A fixed term is coming to an end, or a facility is due for renewal.
- You want to release equity from property or assets to fund growth.
Look at the total cost, not just the monthly payment
A longer term can reduce monthly repayments while increasing the total you pay over the life of the borrowing. That trade can still be worthwhile if it eases a genuine cash flow problem, but it should be a conscious choice. Compare the total amount repayable under your current arrangements with the total under the new one, including all fees.
Before you commit, also check what it costs to leave what you already have.
- Early repayment or settlement charges on existing loans.
- Arrangement fees, valuation fees and legal costs on the new facility.
- Broker fees, if any apply.
- Any charges for releasing existing security.
Your current lender can provide a settlement figure, which is the amount needed to clear the loan on a given date. Use it, rather than the outstanding balance, when comparing options.
Security and guarantees
Consolidating several unsecured debts into one secured loan can lower the price, but it also changes what is at risk. Read the security and personal guarantee terms on the new facility carefully, and check whether existing guarantees will be fully released when the old borrowing is repaid.
When refinancing isn’t the answer
If a business is struggling because it isn’t generating enough profit to service any reasonable level of debt, refinancing may only delay the problem. In that case, a conversation with your accountant about pricing, costs and the underlying model may be more valuable than a new loan. If you are already behind on payments or facing pressure from creditors, independent advice from an insolvency practitioner or a free business debt advice service can help you understand all your options.
Getting the timing right
The best time to refinance is usually when trading is steady, accounts are up to date and there is no immediate deadline. That gives you room to compare offers properly rather than accepting the first one available. Start looking a few months before a facility is due to end, so you aren’t forced into an expensive extension at the last minute.
This article is general information, not financial advice. Loanleaf is an introduction service, not a lender or broker, and is not authorised by the FCA.
