Things you should know before refinancing your existing business loan

"What is Refinancing? Top 6 things to know before refinancing your business loan."

msme-loan

6 mins read

Published: 15 March 2023

Updated: 20 September 2023

What is refinancing? 

Refinancing means opting for another loan to repay the debt of running a loan. Refinancing is a common option for business owners who have running business loans to lower the cost of debt and get favorable repayment terms. A business loan can be easily consolidated into one or the borrower can choose a balance transfer. Opting for refinancing is the better way of transferring running loans to another lender or even with the same lender with better interest rates, repaying options, etc. 

 

Loan borrowers usually choose the option of refinancing when the lender is offering exciting options for repayment. But it should be noted that the lender can refuse to refinance if they find faults in the profile of the borrower. It is important to get the no objection certificate from the existing lender before refinancing. Get to know if you are eligible for the loan and refinancing to avail financial aid hassle-free. The article below shall help you regarding the tips and tricks that one should know if they are thinking about refinancing their loans. 

 

Before applying for the refinancing check if the cost of refinancing is lesser than the savings. Here are some tips that you should consider before refinancing your existing loans. 

Impacting CIBIL score 

Refinancing business loans results in a hard inquiry on the CIBIL score. Hence it is advisable to apply for refinancing only if the borrower has a high CIBIL score and maintained a repayment record. Refinancing impacts the CIBIL score, and if the lender finds fault in the credit score then it will affect the credit score badly. It is important to maintain a CIBIL Score higher than 700 for hassle-free loan disbursement. 

Also read 

Tips to improve CIBIL score 

How can you build a credit score without a credit card

Interest rate comparison

A borrower opts for refinancing when another lender is offering a lower interest rate. But a borrower should compare all the interest rates and check the processing fee for refinancing a loan. It is always good to check and compare rates of interest, processing fees, and other charges before refinancing any loan. 

 

Collateral 

Usually, all long-term business loans are secured which means that they need collateral as a security. The notable fact here is that the asset kept as collateral is not transferred to the new lender in case of refinancing. Instead, the borrower should keep another collateral as a security for refinancing. That’s why one should inquire about collateral to the current lender. 

 

Documents required for Business Loan

Check the documents one needs to file a business loan. It is always good to keep the documents before applying for the loan for hassle-free disbursement. Keeping documents ready can speed up the process and you can get the loan approved and disbursed within a day. 

 

When you should consider refinancing? 

Business refinancing is a crucial decision and quite a hard nut to crack. Choose the option of refinancing only under the following conditions. 

  1. The difference between the current rate of interest and the new rate of interest is higher than 1 percent. 

  2. When the lender is offering an extended tenure period and the lower equated monthly payment (EMI). 

  3. When the mortgage property value has increased and you want to refinance the loan with a higher principal rate. 

 

Conclusion

 

The article above shall help you to understand refinancing and also describes circumstances that are ideal for refinancing. Apart from this, the article tells tips and tricks for refinancing. Get your loan refinanced within a day from My Mudra. A loan is a planned decision with My Mudra. Eradicate the barrier to financial crunch with My Mudra. 

 

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