Refinance
Get the money you need when you need it
By Chin M C
Finance is the lifeblood of a small business enterprise. Small business owners are often faced with inadequate initial capital for a start-up or additional capital to grow the business. Refinancing refers to getting a new loan to replace an existing one.
Refinancing Mortgage for a New Business
A business-minded person is most likely to have an existing housing loan. When this person wants to start a new business, their business plan will likely show that they need some form of capital – so they will turn to their existing banker for a mortgage refinance loan. This involves an application for a new loan on the same previously mortgaged house.
The most important document in obtaining a loan for a small business is the business plan. The business owner has to be confident in the business venture and the banker needs to see the viability of the business before making a decision. The banker will oblige only if the house is adequate to secure the new loan. In this case, if the business owner has paid down his or her mortgage over the years (or if the value of the house has increased), the new loan will be adequately secured.
Refinancing a Small Business Loan
An existing small business owner may have used a small business loan to support his operation. Once the business grows, he or she may need to refinance the business, so he will have to talk to his banker for a refinancing loan. The existing loan is most likely secured against a property; this refinancing involves getting an additional loan against the same piece of property as collateral.
The business owner has to present a workable business growth plan to his banker for a credit evaluation. If the banker is convinced of the growth plan and that two loans are adequately secured by the same piece of property, the business owner will get the additional financing.
The Pros and Cons of Refinancing
The benefit of obtaining a refinance loan for a business is that the owner can hope to generate positive cash flow and make a profit. The benefit of getting further financing from an existing banker is simple – the owner can grow his business. However, the owner must have the insight and knowledge to manage and profit from the business.
Whether the business owner needs a start-up loan or a loan to grow his existing business, the best refinancing loan would be one where he can negotiate for a lower interest rate and longer term than the existing loan. Such a loan would lower the costs as well as ease cash flow.
