Cash flow and the cost of capital – those are worries that keep many entrepreneurs awake at night.
Would you benefit by refinancing your small business loan to get a better interest rate and lower loan payments?
Certainly, you would benefit from a lower interest rate and loan payments if you have cash flow issues.
You might also benefit if you want additional financing to unlock business equity.
However, to refinance your loan, here are four due diligence steps:
1. Investigate lender practices
Quality lenders will adhere to the six Small Business Borrowers’ Bill of Rights.
You should consider reading your bill of rights and only dealing with a lender that takes them seriously.
2. Financial considerations
— Key concerns to consider:
— Comparison of annual interest rates
— Monthly payments
— Length of time to repay the loan
— Closing costs
— Impact on your monthly cash flow
— Prepayment fees
— Late payment fees
— Necessary collateral – is a loan worth the risk to your property?
Also, consider how much time you’d spend. Your time is valuable. It can take weeks to deal with a lender and longer – several months – with an SBA-guaranteed loan.
Getting back to the cost of an SBA loan, it will be based on the prime rate plus a spread ranging from 2.25 percent to 2.75 percent.
All things considered, the extra time for an SBA loan and the required detailed information might not be worth it to you.
Note, it’s worth repeating from the above list financial considerations: Even if you pay the loan off early, some lenders require you to pay full amount with interest under the full amortized schedule.
All situations are different. You should assess whether you should stay with the lender or pre-pay the balance.
3. Monitor the lender
Don’t assume the lender has your back. When you’re paying off the loan, make sure you get a payoff letter and wiring instructions.
Even lenders with well-known names, such as Wells Fargo, have had PR issues for alleged bad practices. Sound impossible?
From Nov. 30, 2015, here’s one of 357,000 Google search results: “U.S. regulators probe Wells Fargo sales practices -WSJ.” Thirty U.S. regulators launched investigations into Wells Fargo sales practices (see Has Wells Fargo Learned from its Lessons?)
4. Tips for qualifying
Lenders can be leery about refinancing existing debt, especially excessive debt.
Lenders also examine your type of loans, such as whether you depend on a merchant cash advance (MCA). MCAs are easy to obtain, but they are expensive.
MCAs are problematic if you take too many – lenders know that frequent advances indicate your business isn’t managed well.
From the Coach’s Corner, here are more money-related tips:
Tips to Get the Lowest-cost Small Business Loan — Small business owners are facing unnecessary financial risks because they increasingly seek debt consolidation and loan refinancing as the result of high interest rates and onerous fees, according to a small-business lender. Here’s what to do.
Applying for Bank Loan? Here’s How to Shorten the Process — Business owners generally have two concerns when trying to get a bank loan or line of credit. Either they can’t qualify or they face scrutiny beyond belief. Wouldn’t it be great to save time and shorten the process?
You Can Creatively Manage Your Cash Flow 7 Ways — If you’re taking the pulse of your business, of course, the first thing to consider is your cash flow. If your cash flow is poor, you feel poor because you can’t pay the bills nor can you use money for what you’d like to do. Your image can also suffer with vendors or with customers, if you don’t manage your cash flow.
Debt Consolidation Will Sink You without These 6 Tips — If you’re not careful in your debt-consolidation plan to bundle your debts for a lower interest rate and minimum payments, you might get into more financial problems. Here are six precautions.
Benefits, Precautions in Issuing Business Credit Cards to Employees — Business credit cards are easy, cost-effective ways to control expenses. They’re a great small business tool to pay expenses and to manage your cash. Indeed, there are dos and don’ts to remember in case you’re one of those entrepreneurs who trust your employees to use a company credit card.
“The true measure of the value of any business leader and manager is performance.”
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry
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