Refinancing: consolidating business debts


The longer a business is established the more common it is that external finance has been used along the way to fund growth. Often entrepreneurs will have used a variety of finance products to get the business from A to B.

In this article we explore whether consolidating multiple smaller debts into one larger facility is a smart move.

When is a single, bigger debt a good option?

Consolidating your debts into a single financial arrangement has several benefits – here are a few reasons it can be a good option:

  1. It’s easier to keep on track

It can be incredibly difficult to keep on top of multiple payments, interest rates and due dates. Refinancing helps you keep track because you just have one payment instead of several – and this means your time and resources are freed up, allowing you to budget ahead instead.

  1. Lower interest rates mean you save money

It’s one of the biggest reasons businesses choose to refinance: switching to a lower interest rate can save you money. High interest rates will keep you paying debts for longer – but if you can decrease that rate even slightly, you’re on your way to being able to reinvest any savings, thereby paying off your principal even sooner.

  1. Improve your cashflow situation

In some situations, debt can be refinanced with a longer repayment profile, meaning the monthly repayments are lower. With improved cashflow more money can be invested in the business where it really matters. Consolidating your debts into a single solution means you have more capital each month, so you can focus on the important stuff – and slow debtors or payroll runs may no longer create the pinch points they once did.

Your business’ debt situation: is refinancing the right choice?

Considering the points above, you may be realising that consolidating your debts could really give you the flexibility to gain back control of your finances – and save you money. It’s a common reason why people choose to refinance their business debts: the benefit of reduced monthly payments or lower interest rates, both improving cashflow. But what else makes it a good option?

Refinancing can also reduce risk because it’s easier to manage in terms of admin. You’ll only be making one payment instead of several, and therefore only dealing with one contact – so there’s less risk of you missing a payment, which could land you in serious trouble (CCJs can be issued to businesses that default on payments to creditors).

Finding terms and rates to meet your needs

The key to making sure that refinancing will work for you is to find a lender with terms and rates that truly suit your needs. Finding the best lender to refinance your borrowing is difficult and time-consuming, so it’s worth using a commercial finance broker or business finance comparison platform such a BIZL. Be sure to get at least 2 quotes from different lenders and not just from your main current account provider. Sometimes high street banks are competitive but it’s certainly not guaranteed.

BIZL is an online business finance comparison platform that helps businesses compare finance fast, free and easily.

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