As a small business owner, you often have the difficult job of balancing opportunities with obligations. And if you use a business line of credit to help cover short-term expenses, manage seasonal slowdowns, or support growth, you know just how important maintaining a flexible business financing source can be. 

However, there may come a time when you need a change. Although your business may benefit from keeping an open credit line over an extended time, the original interest rate, fees, terms, or credit limit might not always be the best fit for your company’s needs. That’s where refinancing comes into play. 

When you refinance a business line of credit, it may be possible to lower borrowing costs, improve cash flow, and access additional working capital for new business opportunities. Yet before you refinance, it’s important to understand the process, including potential benefits and common pitfalls, to decide whether it’s the right move for your business.

Can you refinance a business line of credit?

It is possible to refinance a business line of credit, but not all borrowers will automatically qualify. Refinancing a credit line simply means taking out new financing, like a new business line of credit or even a business loan, and using it to pay off your existing debt. In general, the goal is to find a new financing solution that offers better terms than your current credit line, such as a lower interest rate, higher credit limit, or a better repayment structure.

Of course, it’s important to keep in mind that there are caveats when it comes to refinancing a business line of credit. Some lenders may restrict early refinancing or your financing agreement might include a prepayment penalty if you close a credit line before a certain date. You’ll also need to meet a new lender’s qualification requirements, including creditworthiness and annual revenue standards, to qualify. 

On the other hand, if your business credit score, personal credit score, or cash flow has improved since you first opened your line of credit, refinancing might be an easier task. With improvement in these areas (or others), you could be in a stronger position as a borrower to refinance and potentially secure better financing terms.

Is refinancing your business line of credit right for you?

Refinancing a credit line can sometimes be helpful, but it isn’t a one-size-fits-all decision. Before you make a switch, it’s wise to evaluate your current financing situation, business goals, and eligibility.

When refinancing makes sense.

Refinancing a business line of credit could be a smart move if: 

  • Interest rates have dropped. 
  • Your credit score has improved.
  • You’re seeking a longer draw period or better repayment terms.
  • You need access to more capital to support business growth or new projects.
  • You want to consolidate multiple credit lines or business debt into a single account.

When refinancing might not help.

It may not be the right time to refinance a business line of credit if: 

  • Your credit utilization ratio is high.
  • Your credit score has declined. 
  • Cash flow for your business is unpredictable. 
  • Prepayment penalties may apply (and outweigh potential savings) if you refinance early.

Benefits and drawbacks of refinancing a business line of credit.

There are also pros and cons to consider before you refinance a business credit line. See the chart below for side-by-side comparisons you can use during the decision-making process.

Benefits Drawbacks
Possible to lower interest rate and overall cost of borrowing (if eligible). May involve new origination and closing fees.
Possible to improve repayment terms for better cash flow management (based on eligibility). Requires time and effort to apply and qualify.
Opportunity to consolidate debt into a single payment. New hard credit inquiries may temporarily damage credit scores.
Potential access to higher credit limits. Lenders may not approve refinancing for existing borrowers, and you'll need to qualify if seeking financing from a new lender.

Understanding risks and limitations.

Every financing decision involves trade-offs. For example, while a lower interest rate might reduce your monthly payment, a renewed (and therefore) longer overall repayment term could increase total interest costs over time. Likewise, switching lenders might cause a dip in your average age of credit history, potentially triggering a decrease in your credit score.

Before you move forward, calculate these variables. Then, make sure the projected savings from refinancing your credit line is the right strategy to support your long-term business goals.

How to prepare for refinancing: Key steps and requirements.

If you’re considering a business credit line refinance, preparation is key. Lenders will review your company’s financial health, repayment history, and risk profile before approving a refinance or any other type of new business financing. So, if you take time to strengthen your business’ financial position and creditworthiness before you apply, it may improve your approval odds and make your overall refinancing process smoother.

Below are details lenders typically review when you apply to refinance a business line of credit.

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  • Business credit score: Lenders assess your credit profile to evaluate your ability to manage business debt responsibly. A higher credit score could unlock lower interest rates and better borrowing terms. 
  • Annual revenue: Your company’s gross revenue helps lenders determine your repayment capacity. Lenders want assurance you can manage new business debt payments comfortably. 
  • Cash flow: Consistent cash flow indicates stability and demonstrates an ability to meet financial obligations like debt payments, payroll, and operating expenses.
  • Collateral: If you apply for a secured business line of credit or a secured business loan, you’ll need to provide assets to back the loan (e.g., real estate, equipment, or receivables). Unsecured credit lines don’t require collateral.‍
  • Time in business: Some lenders prefer businesses to have at least one or two years of operational history. However, companies with six months or more in business may be eligible for a startup business line of credit.

After reviewing these factors, take the time to address possible weak points. For example, improving your credit or increasing your working capital might put you in a better position for approval.

Navigating the application process for a refinance.

Once you’re ready to move forward, it’s also helpful to understand what to expect when you apply for a refinance. The process can vary slightly from one lender to another, but here’s a general idea of what you might experience.

1. Review your current loan agreement.

Before applying with another lender, review your existing loan terms. Take time to understand fees, rate structures, and prepayment penalties in your current financing agreement. These details can help you make informed decisions when you evaluate new financing offers. 

2. Assess your financial health.

Check your business credit, personal credit, and recent financial statements. Pay down debt balances (especially business credit card balances) whenever possible. Most of all, pay on time to protect your credit score.

3.  Determine your refinancing goals.

Identify your top priorities for refinancing, like lowering your interest rate, consolidating debt, or increasing your credit limit. Clear financial goals make it easier to sort through offers and choose the best financing solution for your business. 

4. Gather key documentation.

Most lenders require you to provide financial statements, tax returns, and bank statements when you apply for a new credit line or other types of business financing. So, it’s wise to prepare these documents in advance to help speed up the application and underwriting process.

5. Compare lenders and offers.

Request financing quotes from multiple lenders, including online lenders, banks, and SBA loan programs (depending on your borrowing needs). Once you receive quotes, compare interest rates, repayment terms, and fees carefully to find the best fit for your company. 

6. Submit your refinance application.

After you select the best credit line or business loan for your needs, complete your new lender’s application with accurate details and supporting documents. If the lender asks for any additional information, be sure to respond promptly to avoid potential delays.

7. Review approval terms.

Once a lender approves your application, read through the final loan agreement carefully. Confirm the new interest rate, fees, repayment term, and any collateral requirements before signing. 

8. Close and receive funds disbursement.

After closing, your lender pays off the existing credit line or disburses funds so you can do so. If you’re opening a new credit line, be sure to activate your new account and confirm access. With any type of credit, be sure to make your new payments according to the terms of your financing agreement to avoid problems and (hopefully) continue building positive business credit history for the future.

Maximizing benefits and avoiding pitfalls post-refinance.

After refinancing, use your new business line of credit strategically. If you’ve secured a lower interest rate or reduced fees, you can use the savings to reinvest in business growth—perhaps through equipment purchases, operational expansion, or improved cash flow management.

It’s also important to keep your credit utilization ratio low and make all monthly payments on time to maintain a healthy business credit score. Consider setting up automatic payments to avoid missed due dates that could affect future financing opportunities.

Finally, avoid the temptation to take on unnecessary new loans or additional debt. A refinance has the potential to optimize your company’s finances. But it’s essential to manage the refinance process with discipline and a clear growth plan to avoid potential setbacks.

Next steps.

Refinancing a business line of credit can be a smart move, as long as you’re doing it for the right reasons and you manage the process carefully. By securing lower interest rates, better terms, or a higher credit limit, you can improve cash flow and reduce borrowing costs. And either of these scenarios could give your business more flexibility to grow.

Before you commit to refinance a business line of credit, however, it’s essential to evaluate your full financial picture. You also want to compare multiple business financing options. With a little preparation and the right lender, refinancing a business line of credit could transform your business financing strategy and better position your company for long-term success.