Most small business borrowers often struggle to identify the best time to refinance. We outlined five common situations where you should refinance and consolidate your small business loans.
Old SBA Loans
Most entrepreneurs use SBA loans to buy a business. Usually, rates of SBA 7a loans are tied to Prime for a 3-year lock in period where pre-payment penalties apply. Loans that do not include real estate normally span 10 years and those with real estate span 20 to 25 years. Those businesses that were purchased in the last 3 years should refinance and lock in a lower interest rate.
SBA loans put an all encompassing lien on a business and impede company growth and financing options. In this situation, business owners should pay the prepayment penalty, take the tax write-off and refinance their debt to improve credit access and company growth opportunities. Growing businesses that were originally purchased with an SBA loan should refinance with a conventional loan.
In this low interest rate environment, businesses that refinance land contract deals with SBA acquisition loans will save around 3 to 4 percent and extend the term of the loan.
Lines of Credit
Businesses operating for over 18 to 24 months can take advantage of the low interest products like unsecured lines of credit. Businesses maintaining good business and personal credit levels will see the most cost advantage.
Leveraging Accounts Receivables
Growing businesses can leverage high accounts receivables to obtain cheaper financing. Normally, banks lend up to 80 percent of a business’s accounts receivables at rates of around Prime plus 2. This can be used to prepay high cost loans received when the business lacked goodwill and strong receivables to qualify for less expensive financing options.
Read more to find out how to refinance and lower business loan payments.