After the latest economic downturn, majority of the small business owners were forced to take resort to alternative lending sources for business financing instead of visiting traditional banks. Although such loans helped several small and medium sized businesses to stay afloat, the same small sized businesses suffered from lack of cash flow due to hefty late fees, higher interest rates and other charges which restricted future growth and operation.
In order to alleviate such financial pressures, there were many small business owners who had to opt for refinancing their loans. If you don’t know what refinancing is about, it is changing the current loan agreement to seek benefits of a better interest rate. After refinancing, repayment of debt is scheduled throughout a suitable time span which allows the company to enjoy better cash flow. Let’s check out few signs which prompt you that it’s time to refinance your business loan.
Before you take steps to refinance your business loan, you should know how much interest still remains on the loan. In majority of the loan programs, the borrower usually take months and even years to make payments on the projected interest amount before being able to pay towards the principal amount. If your present loan payments are going towards the principal and not towards the interest rate, it is logical not to refinance.
Refinancing can be an effective way of increasing company cash flow while at the same time reducing the total amount of money being devoted towards the interest rate. The fees that are included in refinancing can become a burden on the already restrained budget of the business owner. Loan holders are usually responsible for application fees and appraisal along with closing costs.
When did you last check the credit score of your company? The credit ranking of a small business can have a considerable impact on the ability to refinance and owners should first review your scores before approaching the lenders. A low rating can not only have a bad impact on your ability to secure a reasonable rate but it can also keep you from refinancing altogether. So, in case you have credit issues, resolve them before refinancing. Repair your tarnished credit by disputing fraudulent credit charges.
As conventional lenders have turned down small businesses during recession, it’s no surprise that there has been too much of dishonesty in lending practices. Charging exceptionally high rates, levying penalties for payment without any reason and not disclosing fees at the outset are few signs of predatory lending. Normal loans charge fees less than 1% and predatory lenders will charge 5%.