First of all, congratulations on securing your business loans. It is favourable to refine your business loan from a higher interest loan to a lower interest one and substantially reduce your business loan. However before taking plunge,there are various factors that need to be kept in mind while changing your plan. So here are some guidelines that you need to keep in mind i.e. when is it the right time to make the transition, caveats for when you should avoid refinancing your loan and how to know your refinance package. Also if you feel it’s gotten more difficult to finance your day to day operations and you need something else or some other source? Don’t worry you are not alone. Even in that case, refinancing can come at your disposal. But before that, there are certain factors that need to be certain factors that you must keep into consideration.
When assessing your current loan, the interest rate is the primary consideration. A better interest rate may result in a lower monthly payment on the loan. Even a few points can lower your loan by a significant amount. Credit union and banks may offer lower interest rates for both traditional loans and refinancing.
The lower interest rate mean that there will be surplus amount of working capital in your account and that extra capital can be used somewhere else very productively and hence enhance the output.This extra cash flow could be used to pay down any other high interest balances you have or this could be invested in your business and result in higher production.
Know your reasons:
Look for a cash-out refinance loan which will provide you with money to pay for repairs or make a major purchase.
If you have a balloon payment due soon, in that case you need to have a ready cash at your disposal in order to make that payment and then refinancing might be a way at your disposal.
Costs and fees of refinancing:
Refinancing is very attractive in certain scenarios but there are certain costs that are associated with the refinancing structure. The costs should not outweigh the benefits and thus specifics must be considered and thus there are certain factors that need to be kept in mind.
- Examine your current loan programme: Assess your current loan. How many years are left on the loan and what is the total consolidated loan amount. One good reason to go for refinancing is loan consolidation.
- What are the costs associated with a new loan: Fees and ancillary costs could offset your savings on the loan. There is no extra fees associated with the loan upto a certain amount but after that amount, banks charge certain fees that might offset your budget.
- Hiring a professional: If you wish to consult an expert abd seek professional advice, that may also take a toll on your pocket and add to the costs and outwigh the benifits. So choose wisely when you are dealing with an outside council.
- Time and manpower costs: Refinancing usually involves huge amount if manpower and time investment. So prepare your mind and body for that task. Do you have the resources and the time. It might seem to be a minor task but it usually is very consuming.
- Be mindful of your credit score: After the crash if 2008, markets are more careful about lending and they look forward to a better credit score while lending so be careful and pay your dues in time so that low credit score does not hamper your chances of getting a refinancing.
Refinancing is simply repackaging your debt. even the most favorable terms and rates will not make the debt vanish. So if someone says they can make your loans disappear, carry out your due diligence and avoid predatory practices. Be careful and aware at all times. All the above things point out that refinancing is not always favourable. So now let us look at those conditions when it is not in our favour.