Refinancing small business loans can lower your APR, reduce the frequency of payments, and even unlock additional working capital. The most common loans used for business refinancing are SBA loans and small business term loans. In this article, we’ll show you how to refinance business loans in three easy steps.

Our thanks to Able Lending for sponsoring this article. If you’re looking to refinance short term, high interest business debt, Able Lending can help. Their fully amortized term loans feature monthly payments, terms up to 5 years, and an average APR of 16%. Able Lending is typically able to offer better loans than their competitors because of their unique backer program. The backer program is a way for your biggest supporters to fund, and earn interest on, a portion of your loan. Getting prequalified online takes just a few minutes and funding is fast.

Visit Able Lending

Step 1: Prepare to Refinance Business Loans

Preparing to refinance your small business debt before you apply for a loan is the best way to increase your chances for approval and to make sure you get a loan that works for you. When you’re preparing to refinance you should do two things before applying for a loan:

  1. Create a Clear Refinancing Goal
  2. Review Debts & Finances

Making time for these two steps will ensure refinancing your small business loans will benefit your business and that you are applying for the best possible loan at the best possible time.

1. Create a Clear Goal For Refinancing

It’s important to know what your primary goals are when refinancing business debt.  Refinancing your business debt can serve many purposes, including:

  • Reduce monthly payments
  • Reduce APR
  • Reduce total cost of capital
  • Allow for additional borrowing
  • Get a more convenient repayment schedule

This is important because a minor reduction in APR may not be worth the origination costs of the new loan. Similarly, spreading a term out by 5 extra months is not likely to lower your monthly payment in a significant way. As a general rule of thumb, you’ll want to see an APR reduction of ~5% and/or a repayment term extension of 12+ months for refinancing to make sense.

Understanding what your primary objective is when refinancing will help you pick the right loan and the right lender. With that information, you’ll be able to determine the minimum qualifications for approval as well as the process and timeline for application and funding.

2. Review Debts & Finances

Once you have set a clear goal for refinancing your business debt, it’s time to review your business and personal finances. A complete review of your finances will help you know how much you’ll need to borrow to complete your refinance and whether or not you’ll qualify.

There are 3 main things you need to do to understand your business’s financial position:

  1. Review Your Existing Business Debt
  2. Add Additional Capital Needs & Estimated Origination Fees
  3. Review Your Financials

Now let’s look into why each step is important.

1) Review Your Existing Debt

The business debts that are most often refinanced are high-interest loans with daily or weekly repayment schedules. These loans include merchant cash advances (MCA), short-term loans, or small business credit cards. To begin the review of your business and personal finances, compile a complete list of your existing debts. At a minimum you’ll want a total balance for all debt owed as well as a your total debt payments in a month.

You’ll want to include the following:

  • Current Balance: How much money you currently owe.
  • Current Monthly Payment: How much you pay to service the debt monthly.
  • Interest Rate: Ideally the APR (simple interest & factor rate is okay, too) .
  • Remaining Repayment Term: How long you have to repay the existing balance.
  • Prepayment Penalties: Penalties for paying early (or equivalent)
  • Repayment Frequency: Daily, weekly, semimonthly, or monthly?

Gathering this information will help you know exactly how much debt you need refinanced. It will also help you prioritize the debt you want to refinance (higher interest, higher frequency payments taking priority).

mihir kroke able lending how to refinance small business loans“Be aware of the terms of your current loans before you refinance” said Mihir Kroke of Able Lending. “There may be prepayment penalties that you will have to pay when you refinance. Additionally, it is possible that with a short term loan you have agreed to repay a fixed dollar amount. This means that unlike a credit card, paying back the loan quicker does not necessarily save you any money. You will have to be approved for the entire fixed amount when you refinance.”

2) Add Additional Capital Needs & Estimated Origination Fees

While borrowing more during a refinance might seem counter intuitive, it can be a good idea if it will prevent you from borrowing more short term, high interest debt right away. If part of your goal for refinancing your small business debt is to also obtain additional working capital for your small business, add the amount you need to your existing debt total.

Once you have that figure, add in the estimated origination fees that will come with your refinance loan. Nearly all long term business loans have an origination fee of some kind. These typically range from 1% – 5% of the total loan amount. SBA loans may come with an origination fee, closing costs, and an SBA guarantee fee (as high as 3.5% of the total loan amount).

Current Balance Owed + Additional Capital + Origination Fees = Estimated Total Refinance Amount

You now have a good estimate for how large a loan you’ll need to refinance your debt.

Having the total amount you need will help you determine what refinance loan will be the best fit for your business. It will also allow you to approach the lender looking well informed and prepared. And, believe it or not, first impressions are as important in small business financing as they are everywhere else.

3) Review Your Financials

Reviewing your own personal and business financials will give you a good snapshot of how likely you are to be approved to refinance your business loans. You can size yourself up against the minimum requirements of the loan provider to see if they are likely to consider you to be a strong enough borrower to get funded. Here is a list of information you should review:

  • Profit & Loss Statements
    • What is your net operating income?
      • Net operating income (NOI) = Gross rev – operating expenses
      • This needs to be positive (or needs to be positive after refinancing)
  • Balance Sheet
    • What are your assets and liabilities?
    • This is used to determine what collateral you might have to secure the loan. Additionally, the lender would like to see a positive trend in either retaining or gaining assets.
  • Last 6 Months of Bank Statements
    • What is your average daily balance?
      • Lenders typically require $ 1,000, $ 5,000, or $ 10,000 in average daily balances. This varies by lender and you should check with yours to determine what the requirement is.
    • If you have any overdrafts within the last 3 months then that can be a problem for the lender and they may delay or deny your loan because of it.
  • Personal and Business Credit Scores
    • What are your scores? (Check Here For Free)
      • You need a 680+ credit score to get the best loans with the best rates. A credit score of 600+ may still qualify you to refinance with an alternative lender like Able Lending.
    • If you have red flag credit events like a tax lien, bankruptcy, repossession, or foreclosure, it will be very difficult to qualify for refinancing.
  • Personal and Business Tax Returns
    • Last two years for both personal and business
    • Needs to show that your personal income is sufficient to cover your personal household expenses.
    • Your business returns should the business is profitable.
  • Personal Net Worth
    • How financially sound are you personally and what personal assets could be pledged to the loan?
      • These loans are typically personally guaranteed, so the higher your net worth the more comfortable the lender will be.
      • A strong personal financial net worth goes a long way to lenders being more comfortable with the loan.

Important: Calculate your Debt Service Coverage Ratio

One of the most important factors for a lender when considering a refinance loan is your debt service coverage ratio (DSCR). A DSCR represents your ability to make payments on your debt. Generally lenders are looking for a DSCR of 1.2 or higher, meaning you have enough net operating income to afford to make payments on 1.2 times the actual debt payment you’ll have after refinancing.

If this seems a little complicated, don’t worry. You can download our free Debt Service Coverage Ratio Worksheet. With just a little information it will calculate your estimated DSCR for you.

Ready to get started on your small business refinance loan? If you’ve been in business for at least year, have $ 100k+ in annual revenue, and a credit score above 600, you may qualify for up to $ 1 Million with Able Lending. Because of their unique backer program, they are often able to make larger loans at lower rates than their competitors. It only takes a couple minutes to see how much you prequalify for.

Visit Able Lending

Step 2. Find the Right Lender to Refinance Business Loans

For small businesses looking to refinance business loans, there are typically two options:

  1. An SBA Loan
  2. A term loan from a lender like Able Lending

The table below shows general loan terms and qualification requirements for both a loan from Able Lending and an SBA loan.

Able Lending vs SBA Loans at a Glance

  Able Lending SBA 7a Loan
Credit Score 600+ 680+
Business Revenue $ 100,000+ $ 100,000+ and trending up
Time in Business 1+ Years 2+ Years
Time to Receive Funds Within 1 week of of your backer’s funds being raised Typically 45 – 90 Days
Time For Approval Prequalify in minutes, approved in 5 days As quick as 1 week
Payback Time Period 1 – 5 Years 10 Years
Loan Amounts $ 25,000 – $ 1,000,000 $ 30,000 – $ 5,000,000
APR Average is 16% 6% – 9.5%
Origination Fee 5% 0 – 4% plus
SBA Guarantee Fee of 3 – 3.5% on loans above $ 150K

While an SBA loan is generally cheaper than other business loans, it is difficult to qualify for. Most business owners are more likely to qualify for a loan with a medium term length from a provider like Able Lending. They have a unique system that helps you raise money from people you know, and they add that to your total capital. This enables them to offer a loan that is often cheaper than the competition. Visit them today and determine how much you can qualify for by filling out their online application. Prequalifying takes only a few minutes.

Visit Able Lending

Step 3. Apply to Refinance Your Small Business Loans

Short term loans and credit cards have pretty easy applications that require very little in the way of documentation. Term loans and SBA loans that are used to refinance short term debt require more paperwork and have longer underwriting processes.

Business Loan Refinancing Qualifications

There are basic qualifications that you are going to need to refinance your business loans affordably. These qualifications are covered in the table below.

Business Loan Refinancing Minimum Qualifications

  Able Lending SBA 7a Loan
Personal Credit Score 600+ 680+
Business Revenues $ 100,000+ $ 100,000+
Time in Business 1 Year 2+ Years
Other Qualifications No bankruptcies, defaults, or tax liens No bankruptcies, defaults, or tax liens. Lender might require collateral.

If you meet these minimum qualifications then you may want to pursue refinancing your business loans with a provider like Able Lending. They can get you funded quicker than an SBA loan, and they will likely provide a cheaper option than other loan options that are similar to them.

Documentation Required to Refinance Business Loans

Applying for a refinance loan is more involved than applying for short term loans. The lender will require more documentation and will want to look further back into your financials.

mihir kroke Able Lending refinance business loan“Compared to consolidation loans, which have longer repayment terms, short term loan applications don’t require much in the way of past financial documentation” said Mihir Kroke of Able Lending. “Because consolidation loans are trying to assess your ability to repay a loan over years, rather than weeks or months, they may require more documentation of financial history, like tax returns, P&Ls, and more.”

An SBA loan will require a lot of documentation, usually going back multiple years. Able Lending requires far less documentation, all of which should be readily available to most small business owners. Let’s take a closer look at what documentation you’ll need for both loans.

Required Documentation for Refinancing with an SBA Loan

SBA loan loan applications can take a very long time, in part because they require extensive documentation. Here is a general  list of documents required for an SBA loan:

  • Business Financials (past two years)
  • Profit and Loss Statement (past two year and YTD)
  • Projected Financials (looking forward 1-3 years)
  • Ownership Information
  • All Business Licenses
  • Business Overview and History
  • All Business Leases
  • Loan Application History
  • Business Tax returns (past two years)
  • Personal Tax Returns (past two years.
  • Resumes of Owners

This does not include any SBA forms that you will have to fill out during the process. It also does not include additional documents need for you specific financial situation (like if you own additional businesses or rental properties). You can learn more about the SBA loan application process by reading our full guide here.

Required Documentation for Refinancing with Able Lending

Here is a list of documents that Able Lending will want you to provide for the entire loan underwriting process:

  • Statement of Cash Flow (1 year)
  • Bank Statements (2 months)
  • Income Statement (two years, if applicable)
  • Balance Sheet (YTD)
  • Credit Check

The documentation needed to refinance your business loans with Able Lending is significantly less than an SBA loan. That means less time digging through paperwork and hunting for long forgotten documents and more time growing your business.

Ready to refinance your business debt? Get prequalified in minutes with Able Lending. With rates as low as 8%, terms up to 5 years, and monthly payments, they can help turn high interest headaches into a loan you can manage. Apply now for up to $ 1,000,000 in refinance funding.

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Refinance Business Loans with Able Lending

Able Lending approves small businesses for larger loans, lower rates, and longer repayment terms than you might otherwise qualify for with similar lenders. They are able to offer better loans by having you raise a portion of the loan (typically 10%+) from family, friends, and supporters. Not only do those backers earn interest on their investment, but they give Able Lending an extra vote of confidence in your business. That enables Able Lending to provide you with an exceptional loan to refinance your business debt.

This section will look at how this unique loan offering through Able Lending works.

Able Lending’s Unique Refinancing Product

Able Lending has a unique loan refinancing product. Able requires you to bring part of the capital to the table in the form of 2 or more backers or supporters that want to invest in your business. Your ability to do this strengthens your borrowing position, and helps Able Lending to provide lower interest rates than you would typically get elsewhere.

The backers can be friends, family, advisors, customers, or others who you feel would be interested in investing in your business. Any money from you, your business, your spouse, or your children will not count towards the minimum requirement amount of 10%+ of the total loan capital.

It should be noted that while the minimum backer amount requirement that Able Lending posts on their website is 10%, their average customer is required to bring 15-20% of their loan from backers.

Able Lending makes it very easy to raise money from your backers. They even provide a nice platform online for your backers to easily invest in your loan. You’ll get a link that directs potential backers to a summary of your loan offering, like this:

Able Lending refinance business loan

This loan offering gives you the opportunity to tell your backers more about your business and what the refinancing will allow you to do. It also shows your backers how close you are to being fully funded, so they can see others are supporting you and just how close to crossing the finish line you are.

Able Lending refinance business loan

On your loan proposal page, your backers can choose the pledge amount and their interest rate.  The interest can be anywhere from 2% to as high as the same interest rate that Able Lending is charging you.

Your backers commit their money by providing it directly to Able Lending, who manages the entire loan process. When the loan is fully funded you pay Able directly, and they take care of making sure your backers get paid.

To summarize, here are all of the benefits of Able Lending’s unique refinancing loan:

  • Generally cheaper than similar loans due to their unique backer system that requires you to bring capital to the table (average APR of 16%)
  • Can help reduce your monthly debt payments.
  • You may be able to borrow additional working capital.
  • Spread out your current loan payments over a longer period of time.
  • Get bigger, better loans by raising a portion of the loan from friends, family, and supporters. Able Lending handles the administrative process of raising funds, servicing the loan, and distributing payments to you backers.

Not let’s take a closer look at the process of borrowing with Able Lending.

Able Lending Refinancing Business Loans Process

Refinancing your business debt through Able Lending has 4 main steps:

  1. Apply Online to Get Pre-approved. This process takes only a few minutes and all that is needed is some basic personal and business information. Able Lending will perform a soft credit check that does not impact your credit score.
  2. Submit Documentation to Get Fully Approved. At this time you’ll submit all required documents for your loan to Able Lending. They will run a hard credit check and underwrite your loan. At this point Able Lending will determine how much capital you qualify for and what percentage of the loan you will have to raise from your backers.
  3. Raise Money From Backers. Once your loan has gone through underwriting then the responsibility for moving the loan forward falls to you. You will get your individualized backer website that you can send potential backers to in order to raise the required capital. Any amount you raise above and beyond the required minimum will go towards lowering your overall interest rate. Once you have raised the necessary capital from 2 or more backers the loan can move to funding.
  4. The Loan is Funded. Once all the requirements have been met, Able Lending can get funds in your bank account in about 1 week. Able Lending takes care of disbursing the funds they provide and the funds that your backers pledge. You make one monthly payment and Able Lending takes care of the rest, making sure each of your backers receives their regular payment.

If you are prepared to provide the necessary documentation ahead of time, and have backers lined up already, then the process can be done within 1 week.

Lowering Your Monthly Payments with Able Lending

Able Lending claims they’re able to lower their customers’ monthly payments by an average of $ 5,000. By providing you with a loan that has a lower APR and longer repayment term, Able Lending can make a huge difference in your monthly cash flow.

For example, in the table below we look at a small business that took out a high-interest rate, short term loan to cover an unexpected expense. We then compare what that same business owner’s monthly payment would look like if they refinanced (and borrowed a little extra to have some cushion) with Able Lending.

Example: Reducing Monthly Payments by Refinancing with Able Lending

  Short Term Loans Refinance with Able Lending
Original Balance $ 100,000.00 $ 100,000.00
Additional Capital N/A $ 19,000.00
Origination Fee N/A $ 5,950.00
Total Balance $ 100,000 $ 125,000
APR 25% 16%
Repayment Term 12 Months 5 Years
Total Monthly Payment $ 9,505.00 $ 3,040.00
Difference in Monthly Payment N/A -$ 6,465.00

As you can see in the table above, refinancing  your high-interest small business debt with Able Lending can drastically lower your monthly payments.

In fact, Able Lending has a calculator on their website that you can use to determine what your exact loan savings might be if you decide to refinance your business loans.

Able Lending refinance business loan calculator

Bottom Line

Refinancing small business loans can significantly reduce your monthly payments by reducing your APR and increasing the time you have to repay the debt. It may even be an opportunity to borrow additional working capital. Online lenders, like Able Lending, are making this process easier than ever. And Able Lending’s unique backer requirement is making small business refinance loans an option for more businesses than ever before.

If you’re ready to refinance your high-interest business loans, Able Lending can help. With rates as low as 8%, repayment terms up to 5 years, and monthly payment schedules, their loan could be a game changer for your business. Prequalify online for up to $ 1,000,000 in just a few minutes.

Visit Able Lending

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