Managing your working capital should be at the forefront of any small business owners’ mind. If you have any kind of debt associated with your company, it’s a good idea to periodically consider refinancing. There are a few different ways refinancing can benefit your bottom line, so let’s take a look at each one.
Save On Your Monthly Payments
Many business owners refinance their business loans in order to save on their monthly payments, especially if they can qualify for a lower interest rate. Depending on your credit and financials, you could potentially qualify for a better interest rate, lowering the overall cost of your loan. If your business is going through a hard period and you’re having trouble keeping up with your monthly payments, a refinanced working capital loan could be a solution if you find a loan with a longer repayment term. Although you’ll pay more in interest over the longer period, you can bring your monthly payment amount to a more manageable number.
Change From Variable to Fixed Rate
While you may have taken out your original loan with a variable rate, that may no longer be the best option for your business. Interest rates have been on the rise, so it’s worth considering whether it’s time to refinance to a fixed rate. Even if rates are comparable on both of your loan options, you may prefer a more predictable monthly payment schedule, which you can achieve with a fixed rate business loan.
Consolidate to Get More Cash
Even if you already have a working capital loan, you may need more funding to keep your small business engine going. If that’s the case, you may get better terms and have a better chance of qualifying with just one loan, rather than a few different ones. The refinance loan would cover both your existing loan and your new working capital needs. Another benefit is that you only have to worry about one loan payment and one lender.
What to Watch Out For
When you start looking to boost your working capital with a refinance loan, keep an eye out for a few different potential fees. The first is a prepayment penalty. It’s nice to know that if your business continues to gain profits, you can pay off the loan early without being penalized. Next, be aware of any refinancing charges. You always want to make sure that the bottom line is actually worth it; otherwise, you could accidentally eat into your working capital funds. As long as you’re prepared and understand your loan terms, refinancing could be the boost you need for your business.