The coronavirus crisis triggered one of the worst global economic recessions in history. It will, no doubt, affect every business and individual in some way. This means that the matter of debt will become even more relevant and can lead to a crisis of its own. Those who already have debt, which means the majority of business owners, should consider loan refinancing. Now is the time when interest rates will be low. Therefore, this crisis might give you an opportunity to manage your company’s debt more efficiently.
Impact of the Financial Crisis on Loan Refinancing
The overall impact of the Financial Crisis on loan refinancing is complicated. On the one hand, interest rates go down and it’s important to make use of this fact. There’s also the fact that the demand for debt consolidation and refinancing options increases during a recession.
On the other hand, lenders reduce their activity during recessions. Many have already stopped loan origination and others increased their eligibility requirements. Simply put, it’s hard to get financing now, unless it comes from a government-funded financing program. However, those programs are running out of money fast while the need for loans is increasing.
Therefore, now is definitely the time to embrace frugal living and evaluate your debt. Debt consolidation can be a great help in this situation and refinancing above all. That’s because the one relatively good thing to come out of an economic recession is lower interest rates. This means that you now have a chance to get much better terms on your loan. The only problem is to find a lender willing to take the risk despite the crisis.
How and When to Refinance Your Business Loan
There used to be a when refinancing a loan was a complicated process that could take months. In fact, there are still cases like that. However, the rise of independent alternative lenders and digital financing services transformed the industry. In essence, refinancing is not complicated as long as you have a lender willing to do this. And you can find one rather easily using various online platforms that match you with the best lender based on your search parameters.
The rest of the process is simple:
- Evaluate your debt to make sure that refinancing is the best option.
- Compare offers to pick the lender that will offer the best conditions for your case.
- Apply for a new business loan that will be enough to cover your current debt.
- Once you are approved, pay off your debts with the money.
- Start repaying your new loan, which should have better terms.
This method can be used for debt consolidation if you are able to take out a big loan. This way, you’ll be able to settle the obligations you have and make the whole debt repayment process easier overall.
Refinancing is the best option to use when you either get a much better rate or are unsatisfied with your current lender. Considering that interest rates are already down, now seems like a good time to apply for this kind of financing.
When Business Loan Refinancing Isn’t the Best Idea
Loan refinancing isn’t the best idea when the costs of doing so erase the benefit of a better interest rate. This might happen because of several reasons:
- Your early exit fees are high.
Check out if the loans you have now have early exit fees. Then, do your calculations carefully to see how much of a difference your refinancing option will really do.
- Origination and valuation fees.
Some loans require both these fees, so your refinancing option might not be as cheap as it seems at first glance.
- Loan duration.
Refinancing options usually are more long-term. Therefore, while the interest rate is lower, you might still pay more overall. However, this might be worth it if the loan can help you cut costs now to help you get through the crisis.
Finally, be sure to consider your relationship with the current lender. If it’s good and you’ve established a partnership that allows you to negotiate on some loans, consider staying. Even if there are some options that seem a bit cheaper now, remember that lenders become more demanding. In the wake of the coronavirus recession, loan originations will go down by a large margin. This means that your financing options will be severely limited. And the risk of getting scammed or trapped into a bad contract through tricky legal loopholes will increase.
Refinancing a Business Loan: Should You Do It?
There is no doubt that refinancing and debt consolidation can be very helpful for businesses. Therefore, this is definitely an option you should consider now, when a global recession puts everyone at risk. However, do not forget to study both the terms of your current loans and possible refinancing options. Depending on the situation, even a difference in interest rates might not make it worth the change. Moreover, you need to be prepared that getting any type of loan will be extremely hard now as lenders have all but stopped their activity due to high risks.