How and When to Refinance Your Small Business Debt

If we’ve learned anything from 2022, it’s that every single thing you need to run your business costs cold hard cash—and that cost seems to be increasing by the day. Whether in good or bad economic times, it’s an inescapable truth that money and expenses are daily obstacles to business growth. And if you need money you don’t have, you may have chosen to take out a small business loan.  

The good news? You’re not on your own. Over 43% of small businesses applied for at least one loan in 2021. That means many small businesses are currently struggling through the cursed half-life of spending money that isn’t technically theirs.  

If you’ve signed up for an interest rate that’s no longer looking beneficial, one of the best ways to ease the pain is a quick refinancing plan. But how do you know when to refinance? And even if you know it’s time, which way is best?   

Never fear. We’re here as financial experts who’ve traversed the tricky traps of troublesome lenders many-a-time. Here’s a beginner’s guide to the refinancing journey.   

When should I refinance?   

Figuring out when to refinance is a bit like playing the stock market—the options might look great in the morning, but there’s always the chance they could drastically improve or sink the next day. Ultimately, there’s no perfect time to refinance. However, if you’re considering taking the leap, here are a few factors you might want to consider!   

Credit score jumps  

Credit score flexibility is a double-edged sword. On the one hand, it can plummet into the depths with a single bad investment, but on the other hand, there are intentional ways you can boost your credit score back up. If you’ve been putting in the hard work, take advantage of a higher credit score when you have one!   

Higher credit scores show lenders you’re improving your fiscal responsibility, leading them to lower payments or even offer better interest rates and terms. Sure, your credit score might drop again the day after you refinance, but that’s how the cookie crumbles. No one ever said the Game of Loans was fair—your business either wins or it dies.   

Changing interest rates  

No matter what state your business is in, the outside world of finances can significantly alter your course. The Federal Reserve regularly changes interest rates based on economic fluctuations. Sometimes, this is for the better, but unfortunately, we’re wading through a high-interest period right now as we face global inflation.   

Your business is already dealing with enough economic chaos these days, so it’s hard to imagine dealing with more. Refinancing under lower interest rates is always the better option, but in tight times, if you need the loans and the help, you can still apply for a loan now and refinance as soon as the numbers improve.   

Of course, if you can hold out for another drop, that’s always the best option.  

Payment struggles  

If you're having a tough time paying your current loans, refinancing can reduce your monthly payments and extend your payment period so you have more time to get back on your feet. It might cost you more in the long run, but it will keep your business afloat—and that’s the most important part!   

Business expansions   

If you’re killing the game and swapping out your brick and mortar for gold plates, let your lenders know! The better your business looks, the more lenders are happy to make your life a little easier—as backwards as that sounds. Refinancing when you’re on a growth trajectory can reduce your interest and significantly lower your monthly payments.   

How do I refinance?   

Alright, you’ve made the decision to move forward on your refinancing…now what? In many ways, refinancing is a bit of a “choose your own adventure” game. There isn’t one clear path forward—you just need to pick the easiest path based on your current resources and strategies. Which path will you choose?  

SBA loans  

Small Business Administration (SBA) loans are the safest path for many travelers. These are government-guaranteed loans with different tiers available for all levels of credit—so if your coin purse is running low, you can still get a boost. SBA loans also come with reliably strong terms and interest rates, so you can be sure you’re not getting cheated by a devious mountain troll. The only downside is that SBA loans come with caps, so if you’re dealing in huge numbers, you might be a tad too big to pass through.   

Bank loans  

Bank loans are the most traditional refinancing path. They offer accommodations through both term loans and credit lines alongside exemplary terms and conditions for a safe passage. However, they are picky with who they let through. Bank loans frequently come with stringent credit or collateral requirements, so if your party isn’t prepared, you’ll be kicked off the path before you even start.    

Other loans  

The third path option is often the most treacherous, but also the most accessible. Non-bank or government lenders are easy to find with a quick Google search and they’re all happy to welcome travelers of all shapes, loan sizes, and credit scores. However, such hospitality comes at a literal price. These lenders don’t work under the same strict regulations as banks or government institutions, so the risk of a bad deal runs high. Just be sure to do your research before running head first down this road.  

We wish the rules of the refinancing road were set in stone, but unfortunately, this journey requires a few leaps of faith. However, you don’t need to leap blindly or alone! At Know Your Numbers Accounting, we’re here to guide you down the paths most likely to keep your business afloat. Contact KYN today for an adventuring partner you can trust to see you through to a happy ending.