Many entrepreneurs take out a business loan to get their business off the ground. If this is the case for you, it might be possible to refinance this debt to get a better deal. Most lenders believe that it’s risky to provide funding to a new business and, to compensate for that risk, they charge higher interest rates, which may hurt your bottom line.
However, there is much to consider before moving forward with debt financing. This blog will explain more about how this process works, the advantages and disadvantages, and how to determine if this is the best option for your business.
Debt Financing Defined
The definition of debt financing is obvious: it is the process of applying for a new business loan with better rates/terms to pay off the current one.
Several advantages come with debt financing, including:
- Freeing up cash flow
- Increasing financing options
- Reduces cost of financing
When considering debt financing, it’s also essential to consider the disadvantages as well, which include:
- Negative impact on credit score
- Not right for everyone
- Prepayment penalties on previous debt
Is Debt Financing Right for Your Business?
Most lenders will be thrilled to refinance your existing debt, as long as you meet their qualification requirements, even if it is not beneficial for you. Therefore, you must take the time to understand the details of the deal before you accept a loan offer and sign on the dotted line.
If you take the time to consider all the advantages and disadvantages of debt financing, the decision should be easy. If you’re not sure and you need help determining if this option is viable for your business, contact the professionals at Scarlan Capital Group today. We will be happy to help you with your funding questions.