Refinancing out of expensive business debt: the three numbers to pull before you move

Most owners who regret a loan don’t regret borrowing. They regret one particular facility: the one that was approved in an afternoon during a tight month and now takes a slice of every day’s takings.

If that’s you, replacing it can be one of the best financial moves available. It can also be a way of paying twice, because the old debt carries a cost you can’t escape and the new one adds its own. What decides it is arithmetic, and you can do the arithmetic in an hour with three numbers.

What are the three numbers?

Before you ring anyone about a new loan, collect these from your current lender or from your statements.

1. The payout figure. The exact amount that closes the debt today, in writing, with a date it is valid until.
2. The remaining cost if you do nothing. Add up every repayment still to come until the debt ends.
3. The cash the debt takes each month. Include every daily and weekly debit, then multiply out to a month.

The gap between number one and number two tells you what the lender gets to keep if you pay out early. On a typical bank term loan, that gap is large, because paying early saves you the interest still to come. On many short-term products it can be small or zero, because the repayment total was fixed at the start. That’s why asking for the payout figure matters more than any comparison website.

The third number is the one that explains why you’re here. A business turning over $40k a month that hands $9k of it to lenders has a problem that has nothing to do with how clever the structure is.

Which debts are usually worth replacing?

Not everything on your balance sheet needs replacing. Roughly:

Debt type	Usually worth refinancing?	Why
Merchant cash advance with daily or split-payment debits	Often	Short, costly, and the debits strain cash flow
Short-term loan with weekly repayments	Often	Same pressure, same short horizon
Several overlapping short loans	Usually	Consolidating cuts the number of debits and may cut total cost
Business credit card carrying a balance	Sometimes	Worth it if the balance is stable, not if spending continues
Equipment finance or chattel mortgage	Rarely	Usually already fairly priced and tied to the asset
A bank term loan or overdraft	Rarely	Often the cheapest debt you have; keep it

Banks are frequently the cheapest source of money in the country, and a facility with a bank belongs in the “leave it alone” column unless something has changed. The target is the expensive, short, hurried debt that sits beside it.

How do you compare the old debt and the new one fairly?

Put both on the same page, in dollars, across the same period. Use a loan cost comparison calculator or a notepad.

Line	Old debt	New loan
Amount still owing today	Payout figure	New loan amount
Fees to leave or to start	Exit or early payout fees	Establishment, valuation, legal
Total repayments from today	Number two above	Repayments times months
Cash out per month	Number three above	New monthly repayment
Security or guarantees	What the old lender holds	What the new lender will want

If the new total is lower and the monthly cash out is lower, the choice is easy. The tricky case is the one almost everyone meets: monthly cash out drops sharply but the total is higher, because the new loan runs longer. That trade can be worth making, but it’s a trade, and you should know the price. Our comparison of refinancing and debt consolidation covers the structural differences.

Worked example: an advance that became the problem

This is an illustrative scenario. A Perth cafe owner took a $60k advance during a slow winter, to be repaid with a fixed total of $78k through a percentage of daily card takings. Four months in, with $34k repaid, the balance remaining is $44k, and the card split is taking $620 a day.

The payout figure she is quoted is $44k, with no discount for paying early, so staying put would cost exactly the same $44k, just sooner. A refinance therefore saves nothing on the old debt itself. What it can do is change the shape.

She is offered a $50k loan secured over her home, enough to clear the advance and leave $6k as a buffer, over three years, with total repayments of $59k including fees. Monthly cash out falls from roughly $13k to $1,640. The total she repays on this debt rises from $44k to $59k, and she’s now exposed on her home.

Was it worth it? Her accountant looks at the alternative: continuing the split would have meant roughly $13k a month out of a business netting $9k, so she would have needed new borrowing within weeks anyway. For her, paying $15k more over three years to stop that pressure was cheaper than another round of emergency money. For a business with healthier margins, the same offer would have been poor value.

The lesson is not to copy the choice. It is to see that the real comparison was against the next three months, not against the headline loan.

What can quietly go wrong?

• Paying out a debt that gives no discount. You haven’t saved anything by clearing it early, only by changing the structure. Know which one you’re buying.
• Security you didn’t notice. Short-term lenders often take a general security agreement, a PPSR registration, or a director’s guarantee. All three have to be released when the debt is paid. Check the PPSR after payout and ask the old lender to remove its registration.
• Refinancing without fixing the cause. If margins are thin or customers pay late, a new loan only buys time. Use that time on the cause, starting with how to fix a cash flow problem fast.
• Taking the cash-out and spending it. Borrowing a bit extra to cover tax or stock can be sensible. Borrowing it to mask losses isn’t.
• Not telling the new lender about arrears. It will see them on your statements. Say so first.

If you’re not sure whether the stacking of several loans is part of your problem, read business loan stacking: why it’s dangerous before you add another one.

Where do you go first, and where do you go if they say no?

Start with the lender that already knows you. A bank with a decent view of your account may refinance an expensive facility at a cost nobody else can match, and it’s worth the phone call. If you have a long history with it, bring your last two years of statements and an honest explanation of why you took the short-term money.

If the bank said no, that’s a common outcome rather than a verdict on your business. Banks lean on tax returns and history, and a business that had a rough year can fail that test while being perfectly able to carry a longer, cheaper loan. The usual next steps are a loan against property if you own, an unsecured term loan if you don’t, or a working capital loan for a smaller balance. Our situation page on refinancing expensive short-term business debt lays out how those compare.

If the numbers feel unmanageable, the Small Business Debt Helpline (1800 413 828) offers free, confidential financial counselling, including help understanding guarantees and talking to creditors.

Not sure the maths works? Send us the numbers

If you’ve pulled your three numbers and still can’t tell whether a refinance helps, put them in front of us and we’ll look at it with you.

Check whether a cheaper structure exists for you

Owners in this position often feel they’ve failed. They haven’t; they made a fast decision under pressure, and that’s what fast products are for. The question now is whether a slower, cheaper structure is open to you.

Enquiring takes about a minute and no credit check is run, so your credit file is untouched just for asking. Your details aren’t passed around to a stack of lenders. A real person reads what you’ve written and rings you to talk it through. Put in your actual payout figure, the debits you’re making and what’s been secured, because the more accurate the picture, the more likely the first option we raise is one that works.

Find out what a cheaper structure looks like →