Using a business loan to
refinance existing borrowing could help you focus on what you do best – running
your business.
It’s common for businesses to
take on different forms of finance over time to meet varying needs. For example,
a short-term loan to purchase a new piece of equipment, an overdraft to deal with
seasonal cashflow issues, and a credit card for day-to-day spending.
However, having a variety of
finance arrangements in place may mean the business has to manage multiple
repayments, with varying interest rates, throughout each month. In addition,
some forms of debt – particularly short-term options – can be expensive and
weigh down the growth potential of the business.
Refinancing business debt
One strategy to simplify your current finance arrangements could be to refinance them with a business loan.
Refinancing could offer several
benefits for your business, for example:
- Potentially lower interest rates: A new loan might offer a lower interest rate than your existing debt, reducing your borrowing costs and freeing up cashflow.
- Extended loan term: Refinancing can involve spreading your repayments over a longer period, lowering your monthly payments and making them more manageable.
- Consolidation: If you have multiple debts like credit cards or equipment loans, a business loan can consolidate them into one payment, simplifying your finances.
Before
taking out a business loan, always consider the following points:
- Repayment terms: The length of time to repay a business loan can range from a few
months to several years, so you’ll need to be mindful of the need to make
ongoing monthly repayments during the term of the loan. - Personal guarantees: If you provide a personal guarantee for a
business loan, you’re personally liable to repay the debt if the business
cannot do so. It’s important that you consider getting independent legal advice
to ensure you understand the terms of any personal guarantee. - Terms and conditions: If you breach any of the terms and conditions of
a business loan, this could affect your business’s ability to borrow money
again. For example, lenders will generally inform credit reference agencies
when repayments are missed, so it’s important to understand the terms and
conditions before you take out a loan and make sure you keep up with
repayments.
A
business loan can be a valuable tool to help manage your business. However,
it’s important to make sure this is the right decision for you. If you ever
find that you are in financial difficulty, you should let your lender know as
soon as possible so they can work with you to find the best solution.
Find out more about business loans at LendingCrowd.
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