How to Refinance a Business Line of Credit

Signs it may be time to refinance

Consider refinancing if your business has grown, your credit has improved, your current line costs too much or its limit and terms no longer fit.

Common triggers:

• Your revenue and credit are stronger than when you got the line.
• The current line has high fees, a short draw period or frequent renewal costs.
• The limit is too small for current needs.
• Payments are weekly and strain cash flow, but you could manage monthly.
• You carry a high balance and want a fixed payoff schedule.
• The line is close to expiring or the lender froze it.

Review your existing agreement first. Our guides on line of credit renewal and covenants and terms explain terms that affect your options.

Ways to refinance

You can replace the line with a new line, convert the balance to a term loan, or consolidate several debts into one product.

1. New line of credit. A fresh line with a larger limit or lower cost pays off the old line. See business lines of credit.
2. Term loan. Convert a large outstanding balance into fixed payments over a set period. See term loans. This works well if you used the line for a one-time purchase and want a clear end date.
3. Renegotiation. Ask your current funder for a rate cut, fee waiver or higher limit. It costs nothing to ask, especially if your record is good.
4. SBA refinance. Some SBA loans can refinance qualifying business debt; read SBA loans to refinance business debt. They are slower but can be lower cost.

Do the math before you switch

Compare the total cost of keeping the current line to the total cost of the new one, including closing fees, prepayment charges and the time you will carry the balance.

Gather these numbers:

• Current balance and payoff amount
• Current rate or fees, and remaining cost if kept for the same period
• Any early termination or prepayment fee
• New product's origination fee, rate and payment schedule
• How long you expect to carry the balance

Illustrative example: you owe $60,000 on a line costing about $1,200 per month in interest and fees. A new term loan would cost about $900 per month for the same balance over 12 months, with a $1,200 origination fee. Monthly savings are $300, or $3,600 over a year, less the $1,200 fee, for a net saving of $2,400. If you plan to repay in three months, the savings would be $900 minus $1,200, so refinancing loses money. Use the line of credit calculator and read how to calculate cost of debt.

Prepare your file

Have recent bank statements, a list of balances, your current agreement and a clear reason for refinancing. A tidy file leads to better offers.

Funders want to see steady revenue and clean statements. Gather:

1. Three months of business bank statements
2. Your current line agreement and a recent payoff statement
3. A list of other debts with payments
4. Recent financials, if you have them
5. Government ID and business information

Check your credit reports first and fix errors. See how to get loan-ready. Avoid applying everywhere at once. Multiple hard inquiries can lower a personal score; our guide on hard inquiries explains the effect. ROI Funder uses a soft credit pull to apply.

Risks and traps

Refinancing can backfire if fees are high, the term is longer and costs more overall, or you free up credit and borrow more than before.

• Fees that erase savings. Origination, closing and prepayment fees add up.
• Longer term, higher total. A lower payment spread over more months can cost more in total.
• Re-borrowing. Paying off a line and then drawing the new one back up leaves you worse off. Set a rule to leave some room.
• Stacking. Opening a new product before closing the old one can leave you with two payments. See loan stacking.
• Personal guarantee changes. Check whether new terms add liability. Read how guarantees work.

Refinancing with ROI Funder

ROI Funder matches your file to funders that may offer a new line, term loan or working capital. We show true cost and monthly-equivalent payments so you can compare with what you pay now.

Eligibility starts at 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Applying takes a few minutes, uses a soft credit pull and carries no obligation. A complete file is the application plus 3 months of business bank statements.

ROI Funder works with a network of funders and starts with payback math, so you can see the cost, the payback period and the monthly-equivalent payment of each offer next to your current line. If the numbers do not improve your position, you can keep what you have. Learn more about lines at understanding business lines of credit or start your application.