Should you refinance or consolidate your loans?

As your business grows, it is likely you will utilize different types of lending options to help with the expansion. If you are more established, you may want to revisit your current loans and see if a refinance might make sense.

‍

At some point, just about every franchise entrepreneur will at least consider utilizing a business loan and/or other sources of financing.

Usually, if you have thoroughly prepared yourself and your franchise for going into debt, you will be just fine. As your business grows, it is likely you will utilize different types of lending options to help with the expansion. If you are more established, you may want to revisit your current loans and see if a refinance might make sense.

There are a few benefits to refinancing loan

Some of your loans might have required personal assets to be pledged as collateral. Once the business has seasoned and can stand on its own, it might be possible to refinance and have the personal assets released.

Some of your loans might have a variable interest rate and it might be a good idea to refinance into a fixed rate loan if it could save money. Some of your loans might have a shorter term, and the resulting payment is putting a squeeze on your cash flow. You could consider refinancing the shorter-term loan with a longer-term loan.

Like the residential mortgage industry prior to the collapse, there are currently commercial lenders offering high rate products. You might have taken one because it sounded attractive at the time. You could explore options to reduce your interest rates.

If you have several loans it might be a good idea to consolidate all loans into one single account. This is usually performed by taking out a new loan to pay off all your existing debts, with the debt remaining being in a single consolidated loan with lower interest.

"Depending on your situation, it might be a good idea to refinance into a fixed rate loan."

There are a few benefits to loan consolidation

For one, you no longer have to worry about more than one account — you only have a single creditor to deal with. Second, getting this loan at a lower interest rate can save you a significant amount of money over time. Third, the new lender will likely better understand your business and be able to offer you faster approvals with better terms for future development.

Of course, there can be some downsides to consolidation as well

There is always a chance it could actually be a worse deal for you to consolidate than to stay the course with your existing debt repayment plan, so it is imperative that you do all the math to closely analyze all potential scenarios. This will involve comparing interest rates, monthly payments and the fees associated with the transaction. Basically, if you realize after your analysis that you aren’t in a better position after the consolidation, it doesn’t make sense to apply for it.