Considerations for refinancing your home or business loan

While inflation peaked at 7.8 per cent last year, cost of living pressures are still being felt by consumers and small businesses alike. In the current environment it’s important to look at your outgoings, whether it’s your personal financial situation, or your businesses’ bottom line, and see if there are any areas you could possibly cut costs and create savings. One way to reduce personal, or business costs is to review your current borrowing arrangements.

A new record has been set for external refinancing, with more than $19.5 billion of loans changing lenders in November, new data has shown.ⁱ

Refinancing your home loan

When it comes to our personal finances, mortgage repayments are likely to be one of, if not the biggest expense we incur so it can make sense to review your loan and maybe replace it with one that offers better terms.

While the most obvious reason to refinance is to obtain a more competitive interest rate and reduce the amount you are paying, it’s important to consider other factors like whether you’d prefer fixed or variable, the term of the loan, the fees involved, as well as the features associated with any options you are considering (e.g. the capacity to pay the loan off sooner or offset your interest with your savings).

Before you go to refinance, check out what rates your lender is offering to new customers. Often, you may be able to negotiate a lower interest rate or more favourable loan features with your existing lender.

Refinancing can also make your life easier if you’re juggling a number of debts (e.g. personal loans, car loans and credit cards). Debt consolidation can help you by streamlining debt under your home loan, often at a lower rate of interest.

Benefits of refinancing for small businesses

For businesses it also might be time for a review of your borrowing situation to avoid paying more interest than necessary. This can help free up cash flow within the business, and it may even be possible to access the equity you have built up in your business, enabling you to invest the extra funds into hiring more staff, buying new equipment or other business needs.

You also might be using a loan product that no longer meets the needs of your business. For many small businesses, the funding arrangements they put in place early in the businesses’ development are still in place, even though they might not be the best fit a few years down the track.

If you offered a personal asset as collateral for a loan when you first started your business, the business may now have its own assets that can be offered and if so, refinancing might offer the opportunity to release the security over your personal asset. You may even find that refinancing can allow you to access the equity you have built up in your business over the years to fund expansion.

Business loan refinancing considerations

Costs involved in refinancing a business loan can include exit fees, valuation fee, settlement fee, government fees and more, which may offset the savings you would have earned with refinancing so make sure you weigh up the possible savings against the fees you’ll need to incur.

Be mindful that lenders will look at your credit history and score, and sometimes also your personal credit history as well as that of your business so prioritise your credit management. Applying for refinance will be recorded on your credit file, which can accrue if you make several applications that are not approved so be sure you meet the criteria for approval before putting in applications.

Processes and facilities to support your business cashflow and lending

Of course, in a time of inflationary pressure its more important than ever to have in place processes to manage your businesses’ cashflow effectively.

If you need greater assistance with your businesses’ cashflow there are also debt facilities that can operate in addition to a business loan. These include:

• Business overdrafts
• Business credit cards
• Invoice finance (which allows businesses to borrow money based on their unpaid invoices)
• Merchant cash advance (where a lump sum is provided upfront in exchange for a percentage of future credit or debit card sales)