Refinancing a business loan: six signals it's time, and four that say wait

Refinancing gets sold as a reflex: a better offer arrives, so you switch. For a business, the decision is rarely that tidy. A loan has a payout cost, a security position, a purpose and a remaining life, and any of those can turn a promising offer into an expensive detour.

This guide gives you a way to decide, a list of the signals that justify the effort, and the traps that sit on the old loan, not the new one.

When does it make sense to refinance a business loan?

Six situations usually justify a proper look.

1. Your business is in a clearly stronger position. Two good years, higher profit, lower debts, a cleaner credit file or more equity in your property. Lenders price risk, and your risk has dropped.
2. A short-term or expensive facility is ending, or hurting cash flow. Daily or weekly repayments on a short-term loan can squeeze a business that is otherwise sound. Moving the balance to a longer, lower-repayment structure can restore breathing room. Our guide to refinancing out of expensive debt covers it in detail.
3. You have several facilities that don’t talk to each other. A card, an equipment loan, an overdraft and a short-term loan can be consolidated. Whether to consolidate or simply refinance one of them is the subject of refinancing vs debt consolidation.
4. The structure no longer fits. Interest-only has rolled to principal and interest, a balloon is due, or a term loan is being used as working capital. A line of credit or an overdraft might suit better now.
5. Your security has changed. A property has risen in value, or you’ve paid down enough of the debt for the lender to release a guarantee or a second asset.
6. Your current lender has changed. A new account manager, a policy shift, a fee change or a reduced limit. You didn’t choose the change, but you can choose the response.

None of these is a reason to refinance on its own. Each is a reason to run the numbers.

When should you wait?

Four situations say hold.

• You’re close to the end of a fixed-fee or fixed-term loan. If most of the cost has already been paid, a payout may save little. Ask for the exact figure.
• Your trading is mid-dip. Applying for new finance in a weak quarter shows lenders the worst version of your business. If you can wait a quarter, the result may be better. Our guide on how to explain a bad year to a lender helps if waiting isn’t possible.
• Your tax position is untidy. Late BAS lodgements or an unpaid ATO balance make any refinance harder and more expensive. Fix the ATO position, or set up a payment plan, first.
• The exit costs outweigh the benefit over the period you’ll hold the new loan. That is the break-even test below.

How do you work out the break-even?

Use dollars, over a realistic holding period, not a percentage. Four steps:

1. Get the payout figure in writing from your current lender, with a date. A balance on your statement isn’t a payout figure.
2. List the exit costs: early repayment or exit fee, break cost on any fixed-rate component, discharge or release fees, plus any legal costs.
3. List the entry costs: application or establishment fee, valuation, legal fees, searches and any stamp duty where it applies.
4. Compare total outgoings on the old and new loans over the shorter of the new term and the time you expect to hold it.

A simple worked example (illustrative figures): a business owes $180k on a loan with 20 months left.

Item	Keep current loan	Refinance
Remaining repayments over 20 months	$199,000	$187,500
Exit and discharge costs	—	$2,400
New loan set-up costs	—	$3,100
Total	$199,000	$193,000
Difference		$6,000 saved

The saving is $6,000 over 20 months, about $300 a month. That’s real, and it also depends on the new loan being held for the full period and on nothing else changing. If the owner expects to sell the business in 10 months, the picture shifts.

The loan cost comparison calculator lets you test two offers side by side, and our guide to the true cost of a business loan shows what to include.

What costs hide on the old loan?

Check these before you apply, because they can change the answer.

• Early repayment fees and minimum terms. See early repayment savings and penalties.
• Break costs. A fixed-rate loan repaid early can carry a cost that depends on market movements. Ask for the calculation, not just the number.
• Fixed-fee loans. Where the lender priced the loan as a flat fee on the amount advanced, paying early may refund little or nothing. Some contracts include a rebate; some don’t.
• Discharge steps. A mortgage over property or a registered charge has to be formally released. Allow time, and fees, for that.
• “All monies” security. If one security covers every debt you owe the lender, paying one facility out may not release it. The fine print guide explains the wording.
• Guarantees. A personal guarantor stays liable until released in writing.

What will the new lender look at?

The same things any lender does: cash flow, trading history, security, and the purpose. For a refinance, they’ll add:

• A payout statement for the debts being cleared.
• Evidence of the repayment history on those debts.
• A current valuation if property is involved.
• Up-to-date tax lodgements.

Prepare these before you apply, using the documents that speed up a business loan as a checklist.

If you’re borrowing against property, how valuations work for business loans is worth a read, since a lower-than-expected valuation is the usual reason a refinance stalls.

If you’d like a second opinion on whether a switch stacks up, send us the details of your current loan. We’ll look at the structure with you before you commit to anything.

Should you ask your current lender first?

Yes, in most cases. A bank or lender that already knows your business can often re-price, extend or restructure without the entry costs of a new loan, particularly if your numbers have improved. Ask for a review, bring evidence of your stronger position, and mention that you’re comparing options. The worst outcome is a no, and you’ve lost a phone call.

Take the response seriously. Banks are frequently the cheapest source of funding for a business that fits their criteria, so if yours offers a fair improvement, accepting can be the best refinance of all, with no new valuation and no discharge.

If it won’t move, or the offer doesn’t fit, you now have a number to beat.

What does a good refinance look like?

A few markers:

• You can state, in one sentence, why you’re doing it: lower total cost, lower repayments, a better structure, or a released asset.
• The payout figure, exit costs and entry costs are all written down.
• The saving or benefit is bigger than the cost within the time you’ll hold the loan.
• Security and guarantees are released or replaced in a way you’ve confirmed in writing.
• You haven’t paid off an old problem by creating a new one, such as stacking short-term debts. Our guide on why business loan stacking is dangerous explains the risk.

Ready to see what a refinance could look like?

If the numbers are close and you can’t tell which way they fall, a conversation helps. The enquiry takes about a minute and doesn’t involve a credit check, so your file isn’t touched while you find out what’s possible.

We don’t send your details out to a crowd of lenders. A real person on our team reviews your situation and phones you, so the amount owing, the security and the reason you’re refinancing should be as accurate as you can make them. That lets us point to the right option the first time round.

Check your refinance options →