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How to Refinance Business Loans (and Why You Should)
Too often, as companies grow, they add business debt obligations that can snowball out of control if not managed properly. The fact that you can refinance business loans is overlooked, rather than considered as a strategic option.
Facilities taken at startup, or during periods of rapid growth, may no longer fit your business' scale or its future plans. Business debt consolidation is a powerful way to boost cash flow, reduce the long-term cost of existing debt, and find a better deal with a single monthly repayment.
Strategic business debt consolidation is especially important in a higher interest rate environment, where any improvement results in significant savings.
The business finance team at Clifton Private Finance can work with you to save money, optimise your debt structure, and improve flexibility for future growth plans.
5 Benefits of Refinancing Your Loan Structure
Business debt consolidation is best considered as part of regular financial housekeeping. It's not just something to reach for when cash flow pressure looms.
For example, during periods of strong performance and financial standing, you are in the best position to get superior rates, lower monthly repayments, and flexible loan terms.
While it's not impossible to refinance multiple loans when there is stress on your business, it definitely makes things less attractive to a new lender.
That said, here are the most notable benefits of refinancing business debt.
1. Access More Competitive Rates
Over the years, your business may tap into different business finance facilities to achieve specific goals. For example, you may take a new loan to purchase necessary stock, and then another to hire the resources needed complete a big contract.
Once you meet these goals and grow, your business financial profile and credit score should improve. This puts you in the position to secure better interest rates or greater flexibility with fees. Lower interest rates instantly result in a smoother cash flow and long-term savings on the business debt itself.
As a business owner, your initial loans have served their purpose. This presents you with a debt consolidation opportunity.
2. Simplify Debt Administration
Managing multiple smaller loan structures from different providers such as overdrafts, credit cards, and asset finance (each with its own interest rate and repayment terms) makes it unnecessarily complicated to manage your debt repayments.
Refinancing debt into a single loan, on a potentially lower interest rate, reduces the accounting load. This means you have fewer stress points on cash flow and just one set of monthly payments.
3. Improve Cash Flow
When you have different loans with several financial providers, the monthly payments for each old loan can start to add up and disrupt your cash flow. Debt consolidation into a single loan could ease the pressure.
For example, with new loan terms, you could spread the refinanced loan over a longer timeframe to reduce monthly repayments as well as potentially paying less interest. This would give your business greater agility, for both seizing opportunities for growth and managing unforeseen events.
4. Meet Business Strategies
A well-designed business debt refinancing approach considers your wider business strategies. It should align key funding checkpoints and monthly payments to facilitate both short-term and long-term plans.
For example, a business with a lengthy stock cycle may have historically used a series of business loans to buy stock. Now they find themselves paying interest on the original loans.
An advisor from Clifton Private Finance would look very closely at the specifics of your business to identify the best options for you. In this case it could debt consolidation into a secured loan, with a larger drawdown faciliy that the company could use when a new stock purchase is required.
5. Prepare for Future Business Finance
Refinancing plays its part in developing your business’s financial standing, ensuring you are in the perfect position for any major funding needs in the years to come.
The whole point is that any new debt your business takes on strengthens your debt profile.
As time passes, your business finance advisor should have regular check-ins with you, the business owner, to identify any further business debt consolidation opportunities that arise.
Opportunities for Business Loan Refinancing
Partnering with Clifton Private Finance gives you the power to restructure a wide range of debt finance. Our holistic approach means your financial position will be considered from a wider perspective.
With expert attention, our advisors will evaluate each and every debt obligation you currently carry, looking for opportunities to reduce costs and administration.
We are able to refinance:
- Unsecured business loans: Often, unsecured loans comes with a higher interest rate, taken early in your business or project lifecycle. Refinancing these unsecured loans can result in immediate and considerable savings.
- Secured business loans: Reassessing assets and consolidating existing secured business loans improves administrative and financial overheads. When you apply from a stronger position than the original loans, you are also likely to pay less total interest.
- Asset finance facilities: Restructuring existing asset finance improves cash flow and releases more money for new vehicles, machinery, and equipment if needed. Alternatively, the extra money could be repurposed into other forms of working capital.
- Invoice finance facilities: Reworking your invoice finance products could boost flexibility and lower overall costs. If you move from an invoice factoring facility to an undisclosed invoice discounting facility, there are also reputational benefits.
- Commercial mortgages: Our specialist mortgage team can refinance existing commercial mortgages to improve flexibility, achieve a lower rate, and release equity for extra funds. You may also benefit from improved repayment terms.
- Commercial bridging finance: Meeting planned exit goals is key to keeping the costs of bridging finance down. With specialist understanding, we work to put in place the necessary exit finance that shortens bridging deals and minimises interest.
- Development finance: Replacing short-term, high-cost facilities with low-impact mortgage deals is essential as soon as your property development projects meet long-term lending criteria.
By exploring multiple debt structures together, our advisors can develop a comprehensive plan for immediate savings and long-term stability.
However, it is very difficult to find a willing lender if you have missed payments, defaulted on a previous loan, or have poor trading history.
8 Types of Security You Can Use for Business Debt Refinancing
Securities are an essential component of refinancing, mitigating lender risk to obtain the best rates and most flexible terms.
While the majority of commercial refinancing is secured against high-value tangible assets, specialist lenders who understand the asset-light nature of many modern businesses will consider a range of alternatives to provide the collateral needed to secure refinancing.
- Property: Commercially owned property provides comprehensive traditional security for finance. First, second, and third-charge financing is available, enabling maximum leverage of property equity. Our commercial mortgage and bridging specialists work in alignment to provide both short-term options and long-term finance solutions secured through property portfolios.
- Traditional tangible assets: Equity in high-value machinery, equipment, and vehicles can be quickly leveraged to provide the necessary securities for lenders.
- Stock: Specialist stock and inventory finance can be used as part of a comprehensive refinancing portfolio.
- Other high-value tangible assets: Businesses that have invested in high-value non-stock assets can leverage those items for debt securities. These include fine art, premium collectables, classic cars, and more.
- Accounts receivable: Invoice finance is a powerful option for B2B companies that lack tangible assets, including service companies with little physical infrastructure.
- Purchase order and contract finance: Reliable future income provides specialist lenders with the assurance needed as a loan security. For tech companies and other enterprises with a lack of tangible assets, client-based guarantees and validated subscription statistics offer a viable alternative.
- Investments: Your company’s investment portfolio is a traditional intangible asset accepted by many lenders.
- Director’s personal guarantee: For limited companies, a director’s personal guarantee can provide the essential collateral needed to secure a loan.
Lender underwriting will result in different rates and terms based on the size and type of securities provided with the best offers provided for high-value tangible assets such as property.
Asset-light businesses should not be concerned that they don’t provide a portfolio strong enough to refinance existing loans. Savvy lenders assess the overall strength of your business, not just the tangible assets.
Turnover consistency and well-developed, contract-supported forecasts are increasingly considered as viable intangible securities when assessing business affordability and borrower consistency.
Part of our role at Clifton Private Finance will be to form a comprehensive asset profile to minimise risk for the lender and optimise refinancing rates.
How a Business Debt Consolidation Loan Works
Our fully independent business finance experts always conduct a full evaluation and overview of your how your business works and its existing debt. Then, we combine our findings with our in-depth knowledge of the UK lending marketplace, and conduct bespoke research regarding your individual needs.
Our goal is always to deliver a comprehensive debt consolidation strategy that results in saving money and strengthening the debt profile of your business.
1. Full Business Financial Review
Our team will work closely with you to:
- Understand your business, what you do, your trading history, and other key information to help us present your case in the best possible way. As part of this, we also discuss your business objectives, making sure to understand your immediate and long-term goals
- Audit your existing debt facilities and gather data on essential variables, such as loan amounts, current terms, and interest rates. We consider your contractual obligations to understand the true cost of your current commitments
- Review your assets, both tangible and intangible, to gain an insight into your available security and leverage options. We work with you to determine the ways in which you can provide collateral for any new debt, and ensure you're comfortable with the recommendations
2. Structure Development
We then use the information that we gather from you to:
- Determine the most suitable lending structure moving forward, exploring avenues for asset-based secured lending, property-backed short and long-term options, and unsecured facilities
- Evaluate your cash flow stresses and long-term goals to match potential solutions
- Explore both single consolidation (one loan to replace multiple existing debts) and staged restructuring options
3. Determine Lender Suitability
With established relationships throughout the full marketplace of corporate lenders, our team will:
- Approach multiple lenders who are suited to take on the proposed debt consolidation loan
- Compare terms, fees, flexibility, and appropriateness of lender products
- Evaluate lender requirements for securities and potential needs for personal director guarantees
4. Application Process and Refinancing Debt
Working hand-in-hand with you to navigate the entire process, we:
- Clear existing debts with the new capital raised
- Coordinate the transfer of asset securities between lenders
- Implement the new repayment structure
Why Timing Is Important for Debt Restructuring
Refinancing your existing loans when the pressure is mounting can give you the breathing space you need to move forward, but by timing your restructuring when you are more able to explore the options and balance advantages and disadvantages will ultimately lead to a better deal.
Some key considerations include:
- Market forces: Timing your refinancing to make the most of market rates can reduce your interest burden significantly. Planning for a later refinancing if interest rates are at a high can give you the time to develop a better plan that can be quickly implemented when the time is right, while locking in early with variable rates can give you improved terms.
- Your current terms: Existing credit facilities can expire, and fixed-rate terms will come to an end. Refinancing should be timed to take place before low rates roll into bank standard variable rates (SVR) or credit limits are reduced.
- Lender fees: Early repayment charges may come into force if you pay off existing loans before the end of their term, while arrangement and legal fees can add to the cost. Balancing these against the benefit of the refinancing is important.
- Paperwork: Lenders will require up-to-date financial information for your business. Preparing this in advance of your application will smooth the process and reduce delays.
- Underwriting: Refinancing business loans takes time. Lenders will have to value securities and undertake a period of due diligence. While we do what we can to speed the process, you should still plan for an underwriting process of 4-6 weeks. Where expediency is essential, we can work with you to put in place alternative finance to cover the gap.
Refinancing Business Loans with Clifton Private Finance
At Clifton Private Finance, we are expertly placed to offer you a comprehensive and effective loan restructure. As an independent business finance broker, we have access to the full marketplace of UK lenders, including traditional high-street banks, newer challenger banks, and specialist lenders, allowing us to tailor a refinancing plan that properly suits your business.
As advisors with expertise in complex, multi-facility refinance and business restructuring, we’re here throughout the process, from early consultation, through completion, and on to a continued relationship that supports your business. A partnership with Clifton Private Finance gives you the confidence and stability you need as your business grows and develops for years to come.
For a professional and confidential financial assessment, contact our business finance team for a consultation today.
