When it comes to refinancing your business, there will be several mistakes that you want to avoid, as well as some best practices that you’ll want to abide by, before signing the paperwork. In this blog, we’ll be outlining all of these best practices, tips, and tricks to keep in mind.
As an entrepreneur, the biggest issue that you’ll be having is to question whether you’ll be biting off more than you can chew by refinancing your business. Will you be growing your business, and need the capital to grow further? Or are you having difficulty making your current loan payments, and need to refinance to avoid defaulting on your business and everything you worked for? Different business needs call for different types of financing and refinancing, so you have to make sure that you’re getting the right type of financing. The only way you will know for sure is by enlisting the services of a business finance professional.
Once you finally decide that you will be refinancing your business loan, there will be some things that you will have to avoid before you sign the paperwork, such as
1. Getting the same type of loan that you had before. Terms of loans, interest rates, and required down payments all change with the times, and as such, the loan you got 10 years ago might not be the best option today. Be sure to consider all possible options before agreeing to a loan, even if it’s a little different than the loan you previously received.
2. Placing too much emphasis on your credit score. The requirements of a business loan are much different than the requirements of a personal/home loan. You have to demonstrate that your business can generate enough income to cover the monthly cost of the loan, and is otherwise sustainable. However, it is highly recommended that you don’t apply for any other type of loan or line of credit before refinancing, and of course, don’t forget to pay your bills!
3. Not shopping around for the best deal. Don’t be so concerned about saving a few hundred dollars in fees, when you’ll be saving a few thousand dollars a year by getting the best deal.
Now that we’ve briefly touched on what NOT to do when refinancing a business loan, here are some best practices to consider when refinancing the loan:
• Make sure you ask the right questions. Some of the right “questions” include, but are certainly not limited to, the following: how much collateral do I need to pledge to solidify this loan? Are there any penalties for pre-payment or late payment? What is the APR compared to the other loan options on the market?
• Stay on top of the lender. Sometimes, lenders will make it difficult for you to pre-pay the loan — or pay the loan in general — because they want to get more money from you. Make sure to get all your instructions, including your wiring instructions, in writing.
• Don’t overborrow or get a merchant cash advance (MCA). Know what your limits are, and abide by them. You will lose your business if you over-leverage.
With our simplified loan application process with minimum paperwork, we offer extensive business loan programs to help customize an affordable funding plan for your small business needs. Whether your business is building a new store, acquiring an existing unit, upgrading equipment, or remodeling. Since 2001, IRH Capital has been providing financing to small businesses to help them develop and grow.Contact us today to see what we can do for you.