How to refinance your business debt

What refinancing actually does

Refinancing means taking out a new facility to repay existing debt, ideally on terms that suit your company better today than the ones you originally signed. The motive is usually one of three things: a lower total cost of borrowing, a longer or shorter term to match cash flow, or consolidating several scattered facilities into one manageable repayment.

It is not free money and it is not a reset button on a struggling business. If the underlying problem is that revenue won't cover obligations, refinancing can buy time but rarely fixes the cause. Treat it as a financial-engineering exercise: you are swapping one set of terms for another, and the only question that matters is whether the new set is genuinely better once every cost is counted. See our refinancing overview for the wider context.

Step 1 — Audit every existing facility

You cannot improve what you haven't measured. List each current debt and pull the real figures together before you talk to any lender.

1. Outstanding balance on each facility today, not the original advance.
2. The all-in cost — interest, plus any monthly or service fees, expressed as a rate where you can.
3. Remaining term and the monthly or weekly repayment.
4. Early-repayment charges (ERCs) — the single most overlooked cost. Settling a facility early can trigger a penalty that wipes out your saving.
5. Security — what's pledged: a debenture, fixed charge, or a director's personal guarantee.

This table is your baseline. Every offer you receive is measured against it.

Step 2 — Compare on total cost, never headline rate

A lower advertised rate can still cost you more once arrangement fees, the new term, and any exit costs are added in. The honest comparison is total pounds repaid over the life of the facility, including fees, minus what you'd otherwise pay on the existing debt.

Watch for term creep: dropping your monthly payment by stretching a three-year loan to five years feels like relief, but you may pay considerably more interest overall. Conversely, shortening the term raises payments but cuts total cost. Decide which you actually need — lower cost or lower monthly outgoing — because they often pull in opposite directions. Our guide to how business loan interest works shows how to run these numbers.

Step 3 — Get the timing and the paperwork right

Lenders underwrite on current performance, so refinance from a position of relative strength, not when you're already in distress. Up-to-date management accounts, a clean bank-statement history, and a clear explanation of why you're refinancing all speed approval.

Sequence the switch carefully. The new facility should be agreed and ready to draw before you settle the old one, so you're never caught between the two. If multiple facilities are being consolidated, get exact redemption figures in writing — including interest accrued to the settlement date — so the new advance covers them precisely with no shortfall and no leftover balance accruing interest.

When refinancing is the wrong move

Refinancing is not always the answer. Hold off if any of these apply:

• The early-repayment charges on your current debt exceed the saving from switching.
• You're consolidating short-term operational facilities into long-term debt purely to lower the monthly figure — that can mean paying for this year's stock for the next five years.
• The real problem is a cash-flow gap, in which case a flexible facility such as a business credit facility may serve you better than a new term loan.

For UK limited companies, short-term working-capital finance lent to the company — with no personal guarantee — can be the cleaner route where the need is operational rather than structural.