Business loans are a great way to fund your start-up venture or expand your existing business infrastructure. However, as the enterprise flourishes, most business-heads do not give any second-though to upgrading their business loan. Instead, they just keep paying the EMIs, rather than employing the smart-approach of business loan refinancing.
Simply put, refinancing a business loan means taking another loan to completely repay the outstanding amount of the initial business loan taken. It may sound a bit befuddling, but refinancing your business loan is a smart financial practice. Many times, it happens that you get stuck with the short end of the stick while taking a business loan for the first time. This could be due to your limited experience in the business world or a lack of robust credit score. Therefore, you might get stuck with paying higher business loan interest rates for a longer loan tenor. However, once the business flourishes and you acquire a good credit in the market, you become eligible for conducive interest rates and exclusive offers for availing a business loan. You can take advantage of these offers and get a business loan that is less demanding on your finances. This loan can then be smartly used to ‘refinance’ any of your previous business loans debts.
Some of the major advantages of Business Loan Refinancing includes:
· Decrease/ Increase in the loan tenor
· Lower interest rates
· Lower EMIs
However, before jumping the gun to refinance any of your business loans, there are certain points on which you need to have absolute clarity. Below listed are the top 5 things to know before refinancing your business loan:
The first thing that you must discern before even thinking about refinancing your loan is to check whether your original business loan lender allows refinancing for a business loan. For instance, with the Bajaj Finserv Business Loan, you can easily avail this facility. However, there are some banks and NBFCs (Non-Banking Financial Companies) that do not allow refinancing on an existing loan. Make sure you get clarity on this matter before applying for a refinancing loan with any other lender.
Set a clear goal in mind for refinancing your business loan. Weigh all the pros and cons to decide whether refinancing is a smart choice for you. Also, determine how you can use refinancing to your advantage: whether to take a load off your monthly EMIs or to reduce the total cost of your existing business loan? It is only after careful consideration of all these end-goals that you should decide whether refinancing is a suitable option for your business loan or not.
Doing any kind of financial transaction significantly impacts your credit score. This fact has to be taken into serious consideration before thinking about refinancing your existing debt. Make sure that by refinancing for an existing loan, you do not end up compromising on your future financial capital needs. To ensure that your credit score does not get harmed, carefully evaluate the interest rates and the total tenor of the new loan and make sure that it is in alignment with your current financial situation. Also, carefully review your current capital needs or any other existing debts to estimate how much amount you need to borrow for refinancing your loan.
To ensure that your credit score does not get affected by the refinancing, you need to first have some clarity on your financial needs. To get some perspective, you can:
· Review your profit and loss statements
· Review your assets and liabilities
· Review your bank statements from the last 6 months to ensure that there are no overdrafts on your behalf
If there are any red flags in your account, such as bankruptcy or default of any previous loan, it could significantly damage your credit score, thus reducing your chances of getting refinancing for a business loan.
Do not forget that when you are refinancing, you are actually taking a new loan to pay off the debt of a previous loan. If no proper thoughts are given to your business loan refinancing, you might end up with a significant financial burden of repaying an additional loan along with the existing one. Hence, it is advisable that you take all refinancing related aspects into consideration, including the processing fees of the new loan, origination fees, or any balance transfer charges.
A major benefit of refinancing a loan is the lower interest rates. If you feel that the interest rates offered by your existing loan provider are much higher as compared to what other lenders are offering in the market, you can easily make the switch. Not only will you get an advantage of lower interest rates, but it could significantly bring down your overall EMI amount. However, before taking the plunge, make sure that you compare the interest rates of all the loan providers in the market. Major points that need to be kept in mind while comparing the interest rates between lenders must include:
· Interest rates charges on existing debts and how effective the new interest rates can prove as compared to them
· Frequency of the repayment based and the amount to be paid
Business loan refinancing is definitely an effective way to manage your business loans at better terms and with more time to pay off the debt. If you take all the above-mentioned points into consideration, you can easily reap maximum benefit to pay off any expensive debt on your existing business loan. To know more about how you can refinance your business loan for debt consolidation, visit Finserv Markets today!
Finserv Markets, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!