Business loans allow a small or medium enterprise to expand its operations, streamline working capital, and boost manufacturing. In India, both banks and non-banking financial companies offer business loans and loan refinancing for SMEs. Loan refinancing can help a business save more money in repayments of an existing loan. However, selecting the right lending partner is crucial for a loan refinancing to be of benefit for your enterprise.
Most businesses apply for business loan refinancing because they wish to save money by getting better interest rates for the remaining principal amount of an existing business loan. Obtaining a loan refinancing deal at lower interest rates is possible in two scenarios. Number one, the market interest rates for business loans have dropped due to government and RBI policies. Number two, your business situation has improved, meaning your income / sales are higher and your company’s credit rating has improved, since taking the business loan.
Other reasons why businesses apply for loan refinancing are, moving from a variable rate loan to a fixed rate loan or accessing equity in a commercial property with a cash-out refinance.
Loan refinancing also allows businesses to move from one financing class to another. For example, recovering a collateralized asset through an unsecured business loan, paying off construction debt with permanent financing, or replacing a long-term loan with more flexible, renewable working capital loan.
The thing to know about loan financing is that there are as many options as there are debts. Ultimately, determining whether you need business loan financing depends on your business goals.
Different lenders will have different turnover, documentation and verification requirements for refinancing business loans. Where traditional lenders like banks tend to have an extensive documentation policy, instant business loan providers like Lendingkart only ask for the bare-essentials for approving loans and loan refinancing. In general, lenders require profit and loss statements, balance sheets, and tax returns for multiple periods to assess the financing risk and approve refinancing terms accordingly.
Eligibility requirements for a loan refinancing can depend on the type of your existing financing vehicle. For example, if you are looking for invoice factoring, the lender may not ask for your credit score at all because you are simply collateralising the accounts receivables. In this case, a lender maybe more interested in the credit worthiness of your commercial clients.
There are some things which should be kept in mind before applying for a business loan refinancing. These prudent measures can help you in assessing the true value and benefits of refinancing your business debt.
At the end of the day, loan refinancing is just like all other financial products and services which promise to unburden your financials. When done right, refinancing can bring huge benefits for your business. But if done wrong, it can also alter your financial wherewithal and disrupt operational readiness.
Lendingkart is a leading NBFC in India, offering small-ticket finance of up to ₹ 2 crore for SME owners and startups. We have expert advisors in our employ who can assist you in selecting the right loan refinancing vehicle for your commercial debt. Moreover, you can also avail renewable business loans at competitive interest rates for a period of up to 2 years from Lendingkart. We disburse funds within 3 days of approval and verification of your business and personal information.
To apply for a small business loan, you can either visit our website at www.lendingkart.com or download the Lendingkart mobile app for your Android. To know more about business loans and related topics, follow our blog.
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