A lot of enterprising business-owners opt for a business loan to further their business aspirations. These loans are used for various purposes like buying expensive equipment, stocking inventory, financing payroll, etc. As and how the business makes a profit, most business owners follow the ‘set and forget’ approach as the EMI payments become a routine. However, there are some resourceful businesspersons that use their business loans as an opportunity to upgrade their finances. This is done by business loan refinancing.
Refinancing a business loan means taking another loan with the same loan provider, while paying off the debt of an existing one. A major reason for taking a new loan is that it offers cheaper interest rates and flexible repayment terms and conditions. A business owner can use this loan to pay off the debt of his existing business loan. As a result, he/she saves a considerable amount between the old EMIs of the previous business loan and the new EMIs that come with more affordable interest rates. However, before you consider refinancing your business loan, you need to keep the following things in mind.
Not all loan providers offer a facility to refinance business loan. Hence, make sure that at the time of availing a business loan, you go for a loan provider that offers the loan-refinancing facility. In case your loan provider does not offer this facility, you would not be able to refinance your future loans.
In India, your CIBIL score plays a major part in determining your loan eligibility. It is a three-digit score that is calculated as a summary of your past credit history. Normally, a CIBIL score lies within a range of 300-900. Higher your CIBIL score, higher the chances of you being eligible for loan refinancing. However, a point to note here is that every credit activity affects your credit score. Thus, if you are thinking of refinancing your business loan, make sure you have a proper repayment plan of action to avoid causing any negative impact on your CIBIL score in the future.
The basic idea behind refinancing a business loan is that you can save on the old and new interest rates. The new loan is taken at affordable interest rates, thus offering you a chance to pay lower EMIs. Therefore, while opting for a new loan, make sure that your loan provider is offering you lower interest rates and more convenient terms and conditions as compared to your existing loan. Otherwise, there is no point in business loan refinancing.
If, as a business owner, you are already finding it difficult to make ends meet on your existing business loan, then taking another loan does not make any sense, even if offered at lower interest rates. Thus, it is important that you comprehend where you stand with respect to your existing business loan before jumping the gun for business refinance. Make sure you consider factors like the number of EMI installments and the outstanding balance on your existing loan, before deciding on the EMI amount. For instance, if you have paid off a significant number of EMIs already, then the amount required for your business loan refinancing would be much less, significantly offering you benefits on the loan tenure and EMI payments on your new loan.
Availing any loan requires paying the processing fees and file charges involved. Thus, although you will be saving on your interest rates and EMI's with the new loan, you will still have to pay these fees and charges. Make sure that in paying these charges, you do not end up compromising on the profit expected out of business loan refinancing. You can use the different EMI calculators available online to check how much amount you have to repay on your new loan.
