As a serial entrepreneur, Colum Smith has spearheaded many successful businesses and specialises in growing forward-thinking legal businesses.
His current role sees him working as a chief innovation and vision officer for Top 60 law firm Taylor Rose MW.
During a business career which spans three decades Colum has advised many businesses on the steps they might need to take during their growth journey – which can often involve refinancing. Here he offers his advice on how to best approach refinancing a business loan in 2022.
Work out how much you owe
Sounds basic, but so many business leaders kick off the process without any clear understanding of what lies ahead of them.
So before you even think about taking out a new loan to pay off existing debt, you need to gather some important information. The details you should look for include; your outstanding loan balance; the number of remaining payments you owe; the date you are scheduled to make your final loan payment and your current interest rate (and whether it’s fixed or variable).Gathering these details upfront will prepare you as you shop around for new loan options.
Next ask yourself: Is this absolutely the right move?
It sounds obvious but every penny you borrow needs to be repaid. A loan in 2022 might help you reach a short term goal but what hurdles might repayments pose in 2023 and beyond.
Write down the benefits and drawbacks to determine whether refinancing your business loan is a wise choice. Pros might include saving money by switching to a better repayment plan, improving cash flow and building up business credit. Cons could be the penalties for exiting an original deal and higher long term interest repayments.
OK you’ve decided this is the right move. But are you eligible?
No point stressing and spending time applying if you are going to be rejected. So take time to understand whether you’re even eligible for financing before you fill in the form for a new loan. Some lenders will list certain business loan requirements that you need to satisfy in order to qualify for financing in areas such as; Business and personal credit scores; Time in business and your debt-to-income ratio. If you discover any potential issues, see if you can resolve or at least improve them before seeking a loan refinance.
Right, so you think you are eligible? Now get your house in order
Start by gathering required documents. When you apply to refinance your business loan, the lender will review certain documents to determine whether you qualify. This helps the lender understand your level of credit risk and weed out any fraudulent applications. Financial reports can also establish how much your business can afford to repay, and how much the lender may be comfortable lending. A lender will likely ask for some or all of these items; bank statements; personal and business tax returns; business licenses and permits; disclosure of other debt; payroll records; incorporation documents and a business plan.
Don’t dive in
You are eligible. You have all the documents required. And banks appear willing to lend you the money. Great. But don’t dive in. Take your time. Finding the right lender is critical when you’re trying to secure better loan terms with a refinance. As you’re comparing different lenders, there are several factors you should consider, including the interest rates; additional fees and the lender’s reputation.
Keep in mind that the best lender might be the one you’re working with already. Some lenders are willing to refinance loans for their existing customers.
Now it’s time to sign on the dotted line
Once you find a business loan you believe to be a good fit, it’s time to submit your application online or in person. Be sure to provide any required documents to the lender right away so you don’t slow down the process.
Some lenders may let you know immediately if you qualify to refinance your business loan. Others may have a lengthier application process, which may take a few hours or days to find out your results.
Good luck. But remember if you get rejected from one organisation it is not the end of things. You can try elsewhere as many lenders may still be willing to work with you. Never give up. If your business is strong – you are highly likely to eventually find the backing you need.
