Refinancing - Lower Rates  & Higher Closing Costs

Refinancing, whether a business or an individual does it, is the conversion of one or more debts, including overdue amounts, in to a new debt. What it really amounts to is taking out a loan to pay off another loan or debt. When looking at refinancing, the most important thing to consider is: Will refinancing save my business money? You may or may not be able to depending on your situation, the bank's terms and the debts you have to repay.

Some facts to consider include the fact that, when refinancing a secured loan, the bank or institution will generally only offer you about 80% of the value of the collateral on the loan - if you've had the loan(s) for a while, this might be plenty to cover the cost, but if it's a relatively new loan and you haven't paid off that much yet, you're going to wind up with two payments.

Another thing to think about is the type of loan, the closing costs and the rates of the loan. Some banks will offer a "balloon" loan as opposed to a standard adjustable rate loan. Balloon loans work in almost the same way as fixed rate loans, but after a specified period (which usually isn't more than seven years), the remainder of the outstanding balance has to be paid in full. This may be ideal if you plan on having the money available after the specified period of time, but need to refinance on short notice. On the other hand, a balloon loan is easily refinanced if you do not have the available funds at the end of the term.

So long as you remember to shop around, read all terms carefully and ensure that refinancing will save your business money in the long-term. If it does not, simply do not do it unless you desperately need to pay off a debt (i.e. in cases of foreclosure or other legal actions against your property by the lender).