Sometimes, running a business means taking on some form of debt in order to grow your company. Applying for Rochester business loans can help small businesses run daily operations. However, without proper cash flow management, repayments can easily become a burden. If you’re having a hard time repaying business debt, you might want to consider debt refinancing.
Debt refinancing allows business owners to take out another loan to pay off current debts. In order to pay for existing debts, the new loan has to have longer repayment terms and lower interest rates. However, there is more to debt refinancing than paying for current debt. Here are four benefits of debt refinancing.
1. Debt Consolidation
If you have multiple debts at once, it’s more challenging to keep up with payment dues and proper cash flow management. Rather than making numerous payments every month, refinancing business loans to consolidate your debts tends to be a far better option. With debt consolidation, you can transfer all your current loans into one place. Multiple smaller, short-term loans become a single long-term loan.
2. Increase Your Personal and Business Credit Scores
Refinancing your debt and consolidating short-term loans can help improve your personal and business credit scores. Debt refinancing reduces your credit utilization ratio. A credit utilization ratio is your credit card balance compared to the total credit limit available. If you have a low credit utilization ratio, the better your credit rating.
3. Better Interest Rates
There are two common reasons why small business owners choose to refinance debt:
- Repaying on a certain loan results in a huge hit on revenue, which leads to cash flow issues.
- Business is booming after getting a loan, qualifying an owner for a better funding option.
Debt refinancing is a great choice if you want to get better loan rates. While you’ll most likely end up paying down the debt for a longer period, the lower rates of interest will make it feasible. Rather than paying the loan in huge amounts within a short period, you will repay at a slower pace with smaller amounts.
4. Acquire Additional Working Capital
Unlike larger companies, working capital isn’t always readily available for small business owners. They often apply for small business loans to acquire additional working capital. But if they still need additional funds even after taking out a loan, debt refinancing can be the perfect answer.
It’s never a good strategy to take on multiple short-term loans at once because you will always end up with more monthly dues. Debt refinancing allows you to pay off your current debt without harming your cash flow. Smaller monthly payments make it easier for small business owners to manage debt, leaving you with more working capital each month.
Rochester Business Loans
If you would like to receive all the details regarding debt refinancing, contact our experts at SMB Compass. When you do, you will discover how Rochester business loans can help you with your debt refinancing needs.