Quick answer
To refinance is to take out a new loan and use it to pay out an existing one, so the old debt disappears and the new lender takes its place. Australian businesses refinance to cut total cost, change the term, release equity, free up security or combine several debts into one. It only pays off when the savings outweigh exit fees, break costs and new set-up costs.
Key points
- The new lender pays out the old one, and any security is released and re-registered
- Count the full switching cost: discharge, break, establishment, valuation and legal fees
- Compare total dollars repaid over the remaining life of each option, not just the repayment
- Refinancing can also reshape a loan: longer term, different security, or one repayment instead of several
When a business refinances, it borrows from a new lender to repay an old one. The original loan is closed, its security is released, and from settlement day the business deals only with the new lender on the new terms.
That sounds administrative, and much of it is. But it’s one of the most useful tools an owner has, because the loan you needed three years ago is rarely the loan that suits you now.
Why do businesses refinance?
The reasons tend to fall into five groups:
- Lower total cost. The business is now older and stronger, so it qualifies for cheaper money than it did at the start.
- Breathing room. Spreading what’s left over a longer term lowers each repayment when cash flow is tight.
- Cleaning up rushed borrowing. Daily or weekly debits from one or two online loans taken in a crisis can be replaced with one monthly repayment. Our page on refinancing expensive short-term business debt covers this in detail.
- Changing the security. Shifting a loan off the family home and onto a commercial property, for instance.
- Releasing equity. Borrowing more than the payout figure against property that has grown in value, and using the extra for the business.
Banks are often the cheapest place to refinance to, and if your business now fits their criteria, that’s worth pursuing first. If a bank has said no, non-bank lenders refinance businesses every day.
What does it actually cost to switch?
This is where many refinances quietly fail. Before comparing repayments, total up what leaving and arriving will cost:
| Cost | Who charges it | Notes |
|---|---|---|
| Payout or discharge fee | Old lender | Covers releasing the registered mortgage or PPSR registration |
| Break costs | Old lender | Usually only on fixed-rate loans paid out before the fixed period ends |
| Minimum interest clauses | Old lender | Some short-term loans charge a set amount of interest whatever the payout date |
| Establishment fee | New lender | Often a percentage of the loan |
| Valuation and legal fees | New lender | Where property is security |
| Registration fees | State land registry or PPSR | Small, but they add up |
Get a payout letter from the existing lender, calculated to your expected settlement date. That single number makes the comparison honest.
Sorting out which old debts are worth replacing? Tell us what you owe and to whom and we’ll look at whether a switch stacks up.
Worked example: does the switch pay?
An illustrative Geelong joinery has two online loans with a combined payout of $92,000, costing about $1,450 a week in debits. The owner has had a strong year and owns a factory unit with plenty of equity.
A secured lender offers $100,000 over three years, with monthly repayments of about $3,350, to clear both loans and cover $8,000 of switching costs.
| Keep current loans | Refinance | |
|---|---|---|
| Remaining repayments | About $119,000 over 19 months | About $120,600 over 36 months |
| Monthly cash outflow | About $6,280 | About $3,350 |
| Switching costs | Nil | Included in the $100,000 |
On total dollars the refinance costs slightly more, because the debt runs longer. What the owner gains is close to $2,900 a month of cash flow during a period when they want to take on a second apprentice. The refinance isn’t the cheaper path in dollars. It’s still the right call here, because the business needs that cash now and has a clear use for it. Our loan cost comparison calculator helps you run the same check on your own quotes.
Related terms
- Consolidation: rolling several debts into one, which is a common reason to refinance
- Discharge of mortgage: how the old lender’s security comes off the title
- Break costs: what ending a fixed loan early can cost
- Loan term: often the main thing a refinance changes
Is it time to look at your current loans?
Refinancing works best when someone looks at the whole picture: what you owe, what leaving will cost and what the business can comfortably carry. We enjoy untangling files like that. Sending yours through is roughly sixty seconds of typing, and it leaves no mark on your credit history. Nothing gets forwarded to a dozen lenders either. One of our team works through what you’ve written and rings you to talk it over. Please give us real payout figures and current repayment amounts, because that’s what lets us recommend a structure that genuinely leaves you better off on the first call.
Frequently asked questions
When is the right time to refinance a business loan?
Common triggers are a fixed term ending, a much stronger trading record than when you first borrowed, expensive short-term debt you took on in a hurry, or security you want released. Most owners start looking two to three months before the change needs to happen.
Does refinancing hurt my credit file?
A formal application usually creates a credit enquiry, and too many in a short period can make lenders cautious. Paying the old loan out on time is recorded positively. Make one well-prepared application rather than several speculative ones.
Can I refinance if my bank wants out?
Yes. If a bank declines to renew a facility or asks you to move on, a non-bank or private lender can often pay it out, sometimes against property. Expect a full assessment of your current position, not the one you had when the loan was written.
What is the difference between refinancing and debt consolidation?
Refinancing replaces one loan with another. Consolidation is a kind of refinance that rolls several debts into a single new loan. Every consolidation is a refinance, but not every refinance consolidates.
Can equipment loans be refinanced?
Sometimes. The new lender pays out the existing contract and takes over the PPSR registration over the asset. Older or specialised equipment may not have enough value to support a new loan, so the option depends on what the asset is worth today.