Finesse Your Finances with Business Debt Refinancing

A credit line here, a loan there. You’re late with one payment, and the next month your interest rate spikes, your credit line gets capped, or a loan gets called. Suddenly your company doesn’t have enough cash flow to manage its debt payments.

When this happens, your business may lower its monthly costs through business debt refinancing. With this strategy, a business-debt refinancing firm contacts your business’s lenders and works out a better payment plan for you.

Know Your Options

Often, the goal is to consolidate all your outstanding debts into a single, long-term loan, paying off all existing debts. This should result in lower monthly payments than you’d have if you continued paying many lenders at various interest rates and terms. Having a single loan also helps prevent fees and rate hikes triggered by late payments, as there is only one payment you have to remember to make.

Other times, the company may simply renegotiate better terms for you with each of your lenders, getting interest rates lowered or extending the loan term over a longer time frame to reduce your monthly payments. They may also attempt to get some of your debts written off or forgiven by the lender, or try to get your payments suspended for a few months to give you a chance to stabilize your finances.

First Steps

Before signing up with a business debt refinancing firm, analyze your situation thoroughly and make sure you really need to take this step, as it could negatively affect your credit rating. Try calling your lenders yourself first and simply asking them, politely but directly, for better terms or a lower interest rate.

Be particularly cautious if you want to renegotiate a loan that is collateralized by business or personal assets, such as real estate, company trucks, or boats. If the value of these assets has declined since you originally took out the loan, you might be unable to renegotiate the loan for as much money. Usually, you can only refinance up to 80 percent of the current assessed value of your collateral.

Gather all relevant paperwork that might help you qualify for a refinancing loan. You may need to present several years’ worth of tax returns, as well as business and personal tax returns, copies of leases or property deeds, and credit card statements. The new lender may also require a personal guarantee from you to secure the new loan.

Do Your Research

Before you sign up for debt restructuring, check to see if there are any state or federal business loan programs that might provide a better way to consolidate your debt. To name just one recent example, in 2009, the Small Business Administration introduced a zero-interest short-term loan program called America’s Recovery Capital. Through September 2010, ARC provides up to $35,000 each to qualified businesses seeking to pay off existing debts. The loan pays out over six months; repayment doesn’t begin for a year and can be spread out over five years. Programs such as these come and go, so you should always investigate what government loans might help your business.

Compare companies’ fees and services before making a decision to hire a refinancing firm to make sure you’re getting the best value. Business Capital, for instance, offers free consultations, and GE Capital offers an online form that helps you evaluate your options. Carefully compare all fees, interest rates, and loan terms before deciding on a restructuring plan.

If you decide to go with a debt refinancing company, make sure you’re working with a reputable one. Look for a company that’s been in business a long time, and ask them to give you the names of several satisfied previous customers whom you can call.

Many scam artists operate in the credit-counseling field, promising lower payments but not delivering real debt relief. Check with the Better Business Bureau for complaints, and carefully read any proposed agreement with either the refinancing firm or your banks before you sign. Consult an attorney if you have any questions or suspicions about the consolidation deal you’re being offered.