Homeowners aren’t the only borrowers who can refinance their loans for better interest rates. With Corporate Refinancing, a business can consolidate its debt and replace current loans with the new one with a better interest rate and extended terms.
If businesses took on debt during a time when interest rates were high, they may want to refinance. This way, a business repayments better reflect current market conditions.
Because businesses that refinance are paying less interest on loans they have more money available for operating expenses. By changing their debt instruments, many small businesses can convert Short-Term Loans to Long-Term Loans, which increases their cash flow. The increase in available capital enables businesses to meet monthly obligations such as employees salaries and supplier fees more readily. This last point may seem obvious, but businesses that refinance have an easier time paying off their lenders. Along with creditworthiness and company reputation, satisfying creditors goes a long way toward preventing costly litigation in the coming years.
Benefits of Corporate Refinancing
- To take advantage of better interest rates (the reduced monthly payments for a reduced term)
- To consolidate other debt(s) into one loan (and potentially longer/shorter contingent on interest rate differential and fees)
- To reduce the monthly repayment amount (longer term, contingent of interest rate differential and fees)
- To reduce or alter risk (e.g. switching from a variable rates to have flexed right loan)
- To free up cash (often for a longer term, contingent on interest rate differential and fees)
Of course, not all companies should refinance because of financial hardship. On the contrary, the business may opt for corporate debt refinancing because its stock has climbed high enough to attract outsiders. In this case, a company can trade some of its equity for debt reduction. Doing this can boost the health of the company by reducing its debt to credit ratio which will allow for future financing opportunities.