Small business owner looking into refinancing their business

Time to Refinance Your Business Debt? Here’s How You’ll Know

5 min read • Feb 13, 2020 • Jesse Sumrak

Are you considering refinancing your business debt? It’s not a bad idea, especially if you’ve been in business for a few years and those early loans are costing you a pretty penny. But just like you wouldn’t want to rush blindly into a new loan, you don’t want to race off and refinance without first doing your due diligence.

Why? Because refinancing is not always the best option. There are specific scenarios and times in the life of your business when it will make sense, and there are many others when it won’t. We’re here to help you recognize the go-ahead signs so you can seize the moment when it’s right. Below, we’re going to breakdown the 7 most common signs that indicate you’re ready to refinance your business loan. If you recognize any of these signs, there’s a good chance it’s prime time to refinance.

1. Your Credit Score Has Improved

When your business was brand new and you were desperate for capital, you probably had to take whatever financing you could find. We get it—starting a business is hard. If you had little to no business credit, you likely got stuck with higher interest rates. No, you didn’t necessarily make a bad choice at the time, but if your credit score has dramatically improved (which it likely has), refinancing could save you a lot of money.

First, take a look at your credit score. If the first digit of your credit score has gone up, then that’s a good sign that it’s time to refinance. And if your score has suddenly peaked over 700, then that’s another positive indicator that refinancing could help you gain significant savings. If you need help moving your business credit in the right direction, take a look at our comprehensive business credit page. It’ll show you how your business score is calculated, tips to build better credit, and how to fix a low score.

2. You’ve Gained Significant Equity in Your Business

It might not feel like it sometimes, but year after year of monthly payments eventually puts a hefty dent in your loan. The bigger that dent is, the more business equity you have. And the more equity you have, the better you’re positioned to gain a better loan rate through refinancing.

Plus, if you have a commercial mortgage, you can refinance to convert some of that equity into liquidated cash. Refinancing to draw equity out of your property or asset isn’t always a good long-term plan for dealing with debt, but it can help you consolidate loans or cover your business in an emergency.

3. Current Interest Rates Have Dropped

If current interest rates have dipped by at least 1 point, then now may be an excellent time to refinance. Keep an eye on the market and your industry to spot trends. Less risk for lenders means better loans for you. During times of economic growth, lenders will generally offer more favorable rates and terms.

4. You Need Extra Cash Month-to-Month

If your cash flow is low and you can’t find any other opportunities to cut costs, you may need to refinance. Even if you can’t obtain a better rate, you might be able to extend your loan repayment schedule—this extension will lower your monthly payments and free up some extra cash each month. Ideally, you’ll be able to find a better rate and optimal terms, but you may just have to pay more interest over the life of your loan in exchange for cash now.

5. Your Business Has Grown

Lenders don’t just look at your credit score when determining your interest rates, loan amounts, and terms. They also look at your financial statements (balance sheet, income statement, cash flow, etc.), business plans, collateral, accounts receivable, accounts payable—there are a lot of factors.

Because lenders look at so many different influencers, several milestones could make it prime time for refinancing:

  • Credit score: As we discussed before, once you reach a credit score of 700 or higher, you should consider refinancing.
  • Revenue growth: If your annual revenue enters the 6-figure realm, lenders will likely offer you more favorable refinancing rates.
  • Years in business: 2 years is the magic number. Once your business has been in operation for 2 years, lenders are more confident in your trajectory and will offer better interest rates and terms.

6. You Have Multiple Smaller Loans

Starting and growing a business often takes multiple forms of financing. You could have a commercial mortgage, equipment financing, a short term loan, and more all at the same time. These loans can start to add up, and staying on top of all the monthly payments can become a complicated chore. 

When this becomes an issue, you can consolidate your multiple smaller loans into one jumbo loan. This specific type of debt refinancing can help you establish a regular payment schedule, which can help you make your payments on time and prevent hurting your credit score. Plus, if you have multiple short term loans, they likely have higher interest rates. Combining them into one larger loan will probably help you free up some extra cash.

7. You Committed to Sticking with Your Business

Refinancing has a cost, so it only makes sense to refinance if you’re going to stay in business long enough to recoup the up-front expenses. You’ll have to pay appraisal fees, application fees, closing costs, and possibly prepayment penalties. You can get a pretty accurate breakdown of the expected fees ahead of time so that you understand what you’re getting yourself into.

If you’ve looked through these signs and decided the time is right to refinance, congratulations! You’re one step closer to reducing your monthly payments and moving your business in the right direction. Refinancing can be intimidating, but we’re here to help. If you’re ready, check out our recent article, How to Refinance Your Small Business Loan, to learn how to refinance with term loans, business credit cards, and SBA loans.


Jesse Sumrak

Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.