While there are many reasons to consider refinancing your loan, there are some important things you should know before making a decision. Here, we look at what's involved, and some common factors to consider before deciding to refinance.
Why refinance a business loan?
Some of the most common reasons to refinance a loan are:
- To get a better interest rate or new features like a redraw facility
- To change the way your loan is secured or to increase your total borrowings
- If you’re coming to the end of a fixed rate term, and you want a better interest rate or a more flexible loan
- If you have multiple debts, you might consider refinancing to consolidate debts, so that it’s easier to manage your finances.
Should I refinance my business loan?
First, get clear on why you’re thinking about refinancing – what is it about your current business loan that isn’t working for you? Perhaps you want to consolidate multiple loans into one or reduce payments by obtaining a lower interest loan. Maybe it’s about freeing up some capital, or getting more flexibility. If you have a goal, it’ll be easier to assess all the options and start weighing them up.
How can refinancing a business loan help me save money?
Depending on your circumstances, there’s potential cost savings by refinancing a business loan, such as:
- Lower rates – depending on your current rate, there are often a number of competitive offers that may be lower than what you’re currently paying. In addition to extending your loan term, this can have a big impact on decreasing your repayments.
- Increased cash flow – if your debt costs less to service, you’ll have more cash to use on other parts of your business. This could fund new products, more staff or an increased inventory. Over time, it could make a big difference to the direction of your business.
- Consolidating debt – if you’ve got multiple business loans, rolling them into one loan facility can make it easier to manage your debt and repayments.
- Ability to release securities – if any of your previous loans were secured by a property, you might be eligible to apply for an unsecured loan, and use this to release the security.
You can take a look at CommBank’s business loans and explore their benefits to compare and see if any are right for you.
What do I need to consider before refinancing a business loan?
Explore the pros and cons. Make sure you understand if there are any fees associated with leaving your current business loan, as well as the benefits and costs of the new business loan you’re considering – these factors can help you decide whether the switch is worth it.
It’s important to compare more than just the interest rate when you’re researching. Look at all the fees and charges associated with the loan, as well as features and add-ons that are important to you, such as a redraw facility or being able to easily manage your loan online.
You’ll also need to work out your borrowing power. Your financial situation may have changed since you took out your existing loan, so take the time to work out exactly what you can afford – our Business Loan Calculator can help.
How much will it cost me to refinance a business loan?
Depending on your circumstances and your current lender, there are a number of fees that might apply if you choose to refinance, like:
- Early exit fees – some lenders may charge a fee if you repay your loan before the agreed term.
- Fixed rate break costs – in most cases, there’s a fee to exit a fixed rate loan before the end of the defined period. These charges can be extensive, so make sure you know what they are prior to making a decision.
- Origination fees – most lenders charge an origination or establishment fee at the beginning of a new loan.
- Valuation fees – if you’re required to provide an asset as security, then there may be a valuation required. Usually, this is for commercial property and carries a fee, but some lenders may waive it.
How do I refinance a business loan?
If you’ve found a new business loan and you’d like to make the switch, with CommBank you can get in touch with us via the CommBank app, request a callback, or visit a branch,. When you’re applying, a bank or lender will typically assess your income and repayment history, as well as other loans and financial commitments.
If your application is approved you’ll receive a letter of offer and contract for your new business loan. At CommBank, we’ll step you through the process so you can feel comfortable with the transition to your new loan.
You’ll need to complete and submit a discharge or refinance authority form with your current lender, which will notify them that you’re refinancing – this kicks off the process between the two financial institutions. When you’ve signed the loan contract, settlement occurs and your new business loan is used to pay off your existing loan. Your contract should specify when you need to start making repayments on your new business loan.
You may wish to consider seeking independent legal, financial, taxation or other advice on whether refinancing your business loan to a CommBank business loan is suitable to meet your objectives and requirements based on your particular circumstances.