Should you Consider Business Refinancing?
When the economy moves on a sluggish pace and many established businesses fail, business refinancing helps struggling business owners to fill in the shortage in cash flow, helping them stay on top of their loans. Reality is stranger than fiction and traditional refinancing has become tougher to secure these days. Business refinancing lets you take a new loan to avoid bankruptcy and liquidation of your business. It may come with a better interest rate, depending on the financial institution of your choice. Business refinancing can truly save your business, but it is not always guaranteed.
There are many business refinancing programs that help business owners get that necessary funding needed to pay for existing loans and which comes with better, newer terms. This means extending the term of your original debt. By applying for a business refinancing, you also keep your credit rating in good shape by paying off your debtors and making your business grow further. Normally, a business refinancing can give you up to 80% of your loan collateral and repayment may vary on the size of your loan, plus the risks involve in your business operations.
The U.S. Small Business Administration ( SBA ) have relaxed its strict rules on business refinancing and lenders only need to show a 10 percent improvement in their monthly debt service when it comes to long-term loans. This means a longer time frame on business refinancing and a better chance for business owners to acquire that needed financial aid. For many months, the government have been giving help to struggling small businesses through the ARRA ( American Recovery and Reinvestment Act ), where interest-free loans are given up to $35,000 max. The loan principal is subject to a 12-month deferred payment and repayment can go as far as five years. Recent changes to the SBA 504 Loan Program for growing businesses offer long term fixed rate loans for fixed collaterals such as business building and land.
Business refinancing is a sound option for those businesses with a proven track record in the past. If you are considering one, here are four important questions you need to ask before seeking a business refinancing solution:
1. Do You Really Need to Do a Business Refinancing?
You must have a strong and clear reason to justify your action. If you need to improve your company’s profit and finds it hard to grow with all those burden of debts, you can always check other options like selling your assets. Remember that business refinancing takes time and it will be a stressful ordeal. Being too busy for the moment makes you an easy prey for bad choices that can harm your business in the long run.
2. Will the Business Refinancing Cost You More?
Set time to analyze the consequences of having a business refinancing program. You need to compare refinancing terms and interest rates. Check out added fees that arise from finance charges, debt reduction, listing, and services. If the game plan makes you come out ahead instead of making you lose more money, then, take your chances. It is also important for you to verify and check your lender’s history.
3. Can You Make Timely Payments?
The worst thing that can happen with your business refinancing program is not having the discipline to follow through your business plans so you can pay on time. Falling short on your projected earnings is not an excuse, specially when you are facing a 25-year loan. You need to check your resources and make an honest assessment. Your future financial standing should meet the demands of your lenders. Besides, banks are made for profit and make sure you bring good business. Consequences can greatly affect your credit reports.
4. Are You Qualified to Apply for a Business Refinancing Program?
Common sense will tell you if you are qualified or not. You can check your current business status and see the type of loan needed to be refinanced. It is therefore important to seek professional advices from firms that can help you in restructuring your debt. You need to have your balance sheets fixed. There are many debt management agencies out there that can help you settle late payments and clean cases that are under the collection department. The last thing you want is to file for a bankruptcy. A debt lawyer can also help you with the law. Whoever you seek for help, make sure they are licensed and accredited with the proper authorities like the Better Business Bureau.
In the end, business refinancing may be a tedious process that takes perseverance and discipline. Prepare all legal documents that will show you as a good borrower like your financial statements, balance sheets, tax returns, business contracts, and lease agreements. If you do everything right, you can save your cash reserve and the very life of your business. By keeping an honest relationship with your lender, you develop a sense of trust that will be further enhanced by your timely repayment performance. Plan Your Loans and Read Your Terms Very Well!
RESOURCES:
Dun & Bradstreet Inc. “ What is Business Debt Refinancing? “ 2000-2009.
http://smallbusiness.dnb.com/business-finance/business-loans/11260-1.html
Sit, Mary. “ Guide to Business Debt Refinancing. “ 2009. Business.com.
http://www.business.com/guides/business-debt-refinancing-764/
Smith, Ethan. “ New Rules for Debt Refinancing. “ September 2009. Coleman Publishing.
http://www.colemanpublishing.com/public/1029.cfm
Beesley, Carol. “ Managing Small Business Debt: Government Loans and Refinancing Lifelines. “
August 2009. AllBusiness.com.
http://www.allbusiness.com/banking-finance/banking-lending-credit-services-commercial/12601966-1.html
Fontinelle, Amy. “ 6 Questions to Ask Before You Refinance. “ 2009. Investopedia ULC.
http://www.investopedia.com/articles/mortgages-real-estate/09/6-questions-botch-refinance.asp
