Refinancing Commercial Debt

Refinancing and restructuring debt can be a smart move for your business cash flow. One reason why businesses need to refinance revolving debt is due to growth. Over time businesses naturally finance long-term working capital needs on our revolving lines. Recognizing this small dependency on credit lines is not always easy. Another reason for refinancing debt could be to take advantage of lower rates and loan terms. For some businesses this drastically reduces debt payments and improves cash flow.

Whatever your reasons are for refinancing commercial debt you need to know the following things.

  • SBA does not like to refinance existing SBA debt. If you want to pay off an SBA loan you will most likely need to be approved for a conventional commercial bank loan. There are some special exceptions but they are rare.
  • Know what your prepayment penalties are on existing loans. Make sure you have complete payoff quotes for each loan so you know what it will cost you to settle the debts. The lender will need these to disburse funds at closing. You will also want evaluate the total cost to refinance including fees to payoff old loans and acquire a new loan.
  • Refinancing revolving debt is difficult. If you have many credit cards and credit lines you wish to payoff lenders see that as a high risk. Lenders will need to be confident that you are not financing losses on your credit lines and that you will not be drawing them up again once they are paid off. Sometimes a lender will ask you to close revolving lines as a condition of the loan. Be prepared to discuss these concerns in detail for the lender.

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