Do you want to take control of your finances at the start of the new year?

Like most businesses, you might be returning to normal operations after a quiet period in December.

Maybe you’re looking for small business funding to pay your suppliers now, while business picks up over the next few weeks.

This is exactly why more and more businesses just like yours look to refinance their debt at the start of a new year.

In this blog post, we cover refinancing, a step-by-step process to apply for refinancing, and a comparison of the main small business funding options.

If you’re in a rush, here’s a quick summary:

Refinancing involves taking new funding to consolidate your outstanding loans. Many businesses use refinancing for a boost in cash flow.

Below, we’ll cover everything related to refinancing in detail.

A New Year Trend for Small Business Funding: The Rise in Refinancing

One of the biggest reasons South African businesses stop operating is a lack of finance, according to the Global Entrepreneurship Monitor 2017/18.

It’s a sentiment compounded by study after study.

And that’s not even the worst of it.

All of the leading causes of SME failure can be traced back to cash flow, as stated by the 2015 SME Insights Report, prepared by the South African Institute of Chartered Accountants.

“…from the view of SMEs, they start with too little capital, they collect debtors late, are subject to bad debts, overhead levels that are too high, and they are victims of the risks they haven’t identified. Effectively, a lack of financial planning and control are at the heart of many of their problems,” reads the report.

You recognise these as the challenges that come with building a business you love.

Here’s where refinancing your business debt can make all the difference.

At Lulalend, we conducted an analysis and found a trend: an increase in the number of businesses looking to refinance their debt in January.

Heidi Alson, Lulalend’s Business Funding Specialist, provided context to the data:

“Businesses start the new year and they want to reorganise their financial situation. We often see this renewed commitment to improving business finance at the start of a new year, and refinancing has an important role to play in that process.”

How does Refinancing Work for Small Business Funding

When you refinance your small business loans, your debt is consolidated, explained Alson.

So, for instance, if you have funding from another bank or financial institution, refinancing will cover all of that outstanding debt. Put another way, you are trading those multiple, existing loans for one loan. And that brings your financial obligations into a single place.

What is the Purpose of Refinancing for Small Business Funding?

For most businesses, refinancing helps organise debt and improve cash flow, said Alson.

“Many of our clients who refinance their debt in January benefit from better cash flow. There’s often a gap in getting paid by your customers during the holiday season. Refinancing tides you over, so you can pay your suppliers this month.”

How to Determine if Your Business Needs Refinancing

Determining whether refinancing is the best fit for your business begins with gaining clarity on your financial goals.

“You might find there are other financing options that are better suited to your needs. This is where it becomes so important to choose the right lender. You’re looking for a partner and someone that can advise you, so you make a decision that’s truly in your best interest,” said Alson.

For instance, a credit facility becoming a popular option for business owners who need a line of credit that’s available if they need it, without the need to reapply for finance.

Step-by-Step Process for Refinancing your Business Loans

To prepare for refinancing your business debt, keep these steps in mind to guide the process along faster.

·         Determine the Goal for Refinancing your Business Loan

As part of your refinancing strategy, consider your objectives.

Do you want to consolidate your debt? Do you want access to cash flow?

Deciding on the goal for refinancing will help you make the best choice.

·         Take stock of your financial situation

Review your financial obligations.

When you conduct this financial audit, pull together a list of your current debts and the amount owed on outstanding loans.

·         Gather your Financial Statements

During that audit, you’ll have gathered some of your financial statements. Hold onto these.

For your refinancing application, you’ll need to submit your financial statements.

·         Choose a Lender

There are tons of refinancing options available to you. But not all of those will be right for your business. We’ve discussed the criteria to consider in the next section.

Some funders will charge application, appraisal, and early settlement costs. Keep a close eye on these amounts: they add up…fast.

·         Apply

The application process depends on the institution.

How to Choose a Lender to Refinance Your Business Funding

Once you’ve concluded your business will benefit from refinancing, assess the available options.

There are two main funders that refinance small business debt:

·         Banks

·         Alternative funders

How do they compare? And what’s the best option to refinance your small business loan?

We’ve put together the criteria to keep in mind when selecting a refinancing lender.

Approval Times

Getting approval from a traditional lender is a tedious process. Typically, it can take up to six weeks for banks to make a decision.

Settlement Costs

Monitor settlement costs: banks will impose high prepayment penalties on you.

Customer Service

The last thing you want when sorting out your financial situation is bad customer service. With some organisations, you’ll make call after call, ending up in a long line of customers.

Alson said small businesses should make accessible customer service a priority.

“When you’re on the hunt for a lender, look for a company that offers friendly, helpful customer service. Find a company that understands small businesses.”

Is Refinancing Your Small Business Loan Right for You?

Refinancing can help you declutter your business financial situation. It can help set you on a path to organising your finances. It can chart the way to a better financial future for your business.

Secure your business future and stop stressing about your finances.

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