As your small business experiences growth and expansion, you may discover that your initial business loan isn’t sufficient to cover your financial requirements. To sustain your capacity to satisfy the rising consumer demand, you could contemplate the following four tactics: refinancing your existing business loan, reconfiguring an SBA loan, broadening your business credit allowance, or procuring a fresh business loan. While every financing alternative offers unique merits, it’s crucial to plan how the additional funding will be utilized and how to harmonize the repayment schedule with your projected cash flow.
Refinancing using an SBA loan
SBA loans can serve more purposes than just financing new debt. They can also consolidate previously accumulated debt. An attractive advantage of these loans is their 85% guarantee by the SBA while being issued by participating loan providers. However, to gain approval for an SBA loan refinance, you need to maintain a good standing on your current debt repayments and prove that the refinance would significantly benefit your enterprise. The SBA expects a beneficial impact to result in at least a 20% increment in your cash flow. This could result from lengthened payments or a modification of the interest rate, leading to decreased monthly payment amounts.
Modifying the terms of an existing SBA loan
The SBA rarely backs the refinance of a loan it previously guaranteed. When you need to adjust an existing SBA loan, you should cooperate with the SBA and your lender to produce a new payment plan or adjusted interest rate that better suits your present requirements.
Extending your credit line to handle working capital
If you have a business credit line nearing its maturity date, contact your lender to discuss an extension. This move ensures you have enough resources to manage inventory and other working capital essentials allowing you to keep up with market demand. This process which is known as “terming out” allows for stretching your repayments or boosting your credit line, thus prolonging the availability of working capital than initially stipulated. To upscale a business credit line or SBA loan, the SBA typically insists on a significant justification for business growth.
Opting for a new small business loan
Refinancing might boost your working capital, but when major acquisitions like land, new buildings or new machinery are involved, it’s sensible to secure a new business loan. The new loan will permit you to continue repaying your former loan as planned while also qualifying for the SBA’s loan guarantee. Use a business loan estimator to ascertain whether your business can accommodate further debt. Then engage your lender to find out the ideal type of loan for your business.
The role of small business loans in promoting growth
Expanding your working capital ability with a business loan gives you the means necessary to progress your business and compete for contracts that were previously out of reach. Although this guide has covered the SBA’s role in refinancing and expanding the scope of your current loans, your lender might impose extra stipulations. For instance, to accommodate your blooming business, they could ask for additional collateral against a second small business loan. This could entail short-term resources like accounts receivable and inventory, or long-term assets such as real estate and machinery. Prior to expansion, consider the SBA’s 20% rule to balance the costs and benefits of additional funding. If a refinance or small business loan will offer substantial growth potential, now might be an optimal time to expand.
This sponsored content was developed and facilitated by RBS Citizens Financial Group.
