What is Debt Refinancing?
Debt refinancing is a process in which a company or individual replaces an existing debt obligation with a new debt obligation. This can be done for several reasons, such as to obtain a lower interest rate on the new debt or to extend the repayment period.
Gauging the Usefulness of Debt Refinancing
Debt refinancing can be a good option for companies that want to reduce their interest payments or extend their repayment period. By refinancing, companies can get a lower interest rate on their new debt and save money in the long run.
Additionally, debt refinancing can help businesses stay afloat by giving them more time to repay their loans. To gauge the usefulness of this financial option for your company, take a look at the percentage of revenue that you’re spending on debt repayments – this is the first step.
There are a few other realities that will help determine if debt refinancing is the avenue you should take. If you can answer yes to any of the following, then it might be time to find a lender:
If making payments on time is an issue, such that you sometimes delay payroll, then debt refinancing can be a financial savior. Additionally, it is not uncommon in business for clients to pay late and thus stifle your cash flow.
Do the monthly interest payments on your current loan(s) eat up too much cash? Then it might be a good idea to refinance that debt.
Does your company need to update important equipment – or outright buy new machines? If cash flow is negative or low positive, this could be difficult unless you refinance.
Is your current loan rate uncomfortably high? How does it stack up against other debts in the industry? Debt refinancing can bring that rate down dramatically.
There Are Multiple Types of Debt Refinancing
Several different types of debt can be refinanced, including mortgages, car loans, and student loans. In most cases, the debt that can be refinanced will depend on the lender that you work with.
To get started, you’ll need to find a lender that offers the type of debt refinancing that you’re looking for. You can comparison shop online to find the best rates and terms.
Be sure to read the fine print carefully before making your final decision. Some lenders may require that you set up an account with them and make automatic payments from that account. Others may not have any such requirements.
For more information on debt refinancing and other business topics, Gipson Commercial Solutions are your one-stop shop. We’ve got finance experts in areas – you can reach us at our website.