How to refinance a business loan

Refinancing a business loan means replacing your existing loan with a new one on better terms. The new lender settles the old debt directly, and you carry on with the new agreement. Most businesses refinance to lower their interest rate, reduce monthly repayments, consolidate several facilities into one, or release capital tied up in an asset.

With the Bank of England base rate now at 3.75%, down from a 2023 peak of 5.25%, business refinancing has become a more active question for UK SMEs. A loan taken in 2023 may sit at a very different rate to what’s available today.

The maths only works if the saving beats the cost of switching. Early repayment charges, arrangement fees, and any new security requirements all eat into the gain. Late in the term of an existing loan, or where your trading has weakened, refinancing can leave you worse off.

Most business owners only think about refinancing when something prompts it. Usually it’s a rate change, a balloon payment coming up, or a sense that the loan no longer fits the business. If that’s where you are, the next few sections should help.

When does refinancing a business loan become the right option?

The majority of businesses refinance for one of five reasons. Some come down to changes in the market, others to changes in the business, and a few to the way the original loan was structured. The scenarios below should help you work out where your situation fits.

Rates have dropped since you borrowed

If you took out a loan when the Bank Rate was at its 5.25% peak in 2023, you’re likely sitting on a higher rate than what lenders are offering today. Because lenders price off Bank Rate, and Bank Rate has come down to 3.75%, the gap between your current cost of borrowing and what’s available in the market may be wider than you think. Over the remaining term of a larger loan, even a reduction of one or two percentage points can translate into thousands of pounds.

Your business is stronger than it was

The loan you qualified for two years ago reflects the business you were then, not the business you are now. If you’ve grown your turnover, built up a longer trading history, or strengthened your balance sheet, the range of lenders willing to back you has widened considerably. That usually means better rates, longer terms, and more flexibility on covenants. The loan you’ve been paying off probably hasn’t kept pace with the progress you’ve made.

You’re managing several facilities at once

Businesses often end up with a patchwork of borrowing built up over time, perhaps a loan from one lender, an asset finance agreement from another, and a merchant cash advance taken on for a short-term need that’s since become routine. Each facility comes with its own payment date, its own rate, and its own administration. Consolidating everything into a single new loan can reduce the total monthly cost and simplify your cash flow. Done well, it also gives you a clearer picture of what your business owes.

There’s a balloon payment coming

Some loans, particularly older asset finance agreements, are structured so that a large lump sum falls due at the end of the term. If that payment is on the horizon and paying it outright would put pressure on the business, refinancing the outstanding balance into a new facility spreads the cost over a longer period. The earlier you start the conversation, ideally several months before the payment is due, the more options you’ll have.

The loan no longer fits the business

The facility that was sensible when you took it out can drift out of alignment with the business over time. You might have taken an unsecured business loan to buy a piece of machinery because asset finance wasn’t available to you then, but now it is, and the asset itself could be securing a cheaper rate. Or the term might be too short, leaving monthly repayments that squeeze cash flow harder than they need to. Refinancing into a product that better matches the size, term, and security profile of what you’re funding can ease that pressure without changing how much you’ve borrowed.

How to refinance a business loan, step by step

The mechanics of a refinance are the same as any business loan application. The work that affects your outcome happens before you submit it.

1. Review your existing loan agreement

Start by pulling out the original paperwork and working out where you stand. You’re looking for your outstanding balance, how much time is left on the term, and your current rate.You also want to know the size of any early repayment charge (ERC) if you settle before the term ends. The ERC is the one most borrowers underestimate. Lenders calculate it in different ways. Some apply a flat percentage of the remaining balance, others use a sliding scale that reduces the closer you get to the end of the term, and a few have no ERC at all. The figure you want at the end of this step is the total settlement amount, including the ERC, because that’s the number your new loan will need to cover.

2. Decide what you want the refinance to achieve

It sounds obvious, but being clear on the goal shapes every decision that follows. If your priority is lowering the monthly payment, a longer term with a slightly lower rate will usually get you there. If your priority is reducing the total cost of the borrowing, a shorter term with a lower rate works better, even if the monthly payment doesn’t move much. If you’re consolidating several facilities into one, the focus shifts to the blended cost and the simplification of having a single monthly payment date. Without that clarity going in, it’s easy to end up comparing offers on the wrong basis.

3. Get your paperwork together

Lenders ask for broadly the same documents regardless of which one you approach. Most refinance applications need:

• Three to six months of business bank statements
• Your most recent filed accounts, plus up-to-date management accounts if your filed accounts are more than a few months old
• A debt schedule listing the balance, rate, and monthly payment on any existing facilities
• Proof of ID and basic company information

Having all of this ready before you start applying is the single biggest factor in how quickly the process moves. The lenders we work with consistently move faster on cases that arrive with the paperwork already in order.

4. Compare options across the market

You can approach lenders directly, one at a time, or use a broker to compare options across a panel of lenders in a single conversation. The direct route gives you full control, but each lender may run a credit search as part of their application process, and several searches in a short period can affect your score. It also takes longer, because you’re starting from scratch with each lender’s process.

The broker route works differently. At Greenwood Capital, for example, we run soft searches across our panel of more than 100 lenders to shortlist the ones most likely to approve your case, and only submit a formal application to the lender you decide to proceed with. That keeps the credit footprint small and means you’re comparing real, eligibility-checked options rather than headline rates that may not be available to you. For a refinance specifically, where you’re already weighing up the cost of switching against the saving, having a clear picture of what’s on offer matters more than usual.

5. Submit the application

Once you’ve chosen a lender, the application is submitted along with the paperwork from step three. Timelines vary by product. An unsecured loan can be approved in a day or two and funded within the week. Asset finance moves quickly too, and a deal can be approved and funded within the same day when all parties move at pace.

Property-secured facilities like commercial mortgages and bridging take longer because the lender has to complete valuations and legal work, and four to six weeks is a realistic window for those. During this stage, the lender runs underwriting checks, including a soft credit search. A hard credit search is only carried out at the point you accept their offer.

6. Drawdown and settle the existing loan

Once the loan is approved and the agreement is signed, the funds are released. In most cases the new lender settles your existing loan directly rather than transferring the money to you, which removes the risk of any timing gap between the old facility closing and the new one starting. Your previous repayment schedule ends, your new one begins, and any security held against the original loan is either released or transferred across to the new agreement.

Alternatives to refinancing your business loan

Refinancing isn’t always the best route, even when there’s a clear cost saving on paper. If the early repayment charge is high, the remaining term is short, or you only need a small amount of extra cash, a different product can often do the job with less friction. The table below shows the alternatives we see come up most often, and where each one tends to fit better than refinancing.

Refinancing tends to win when the priority is a lower rate on the same borrowing. Where the priority is extra cash or easier cash flow, one of the alternatives above usually gets you there with less effort.