A company has many financing options
There are more traditional channels, such as bank loans, bond issuance or the sale of shares. The recent development of new realities Fintech has introduced alternatives such as crowdfunding, as well as reducing the obstacles for solutions such as factoring and leasing.
It is important that the funding chosen matches the needs of the company, but these needs can change. The interest rate on the market may decline or the company itself may continue to grow. As a result, other funding opportunities can become attractive and it can be beneficial for a company to refinance itself. With debt refinancing and consolidation, a company finds new funding channels to replace an existing loan.
Most companies still finance themselves through the banking channel. We usually receive own refinancing requests as an alternative to bank loans. Allan borrowed $ 625,000 on October to refinance the landscaping of the newly acquired land.
Credit team analysis
A company can choose to refinance to cut costs, for example by refinancing an ongoing loan with a lower interest rate loan. In addition, the firm can extend the duration of the current loan, in this way it can reduce the amount of the monthly installments.
Another very common goal in case of refinancing is the exact opposite of repaying the loan. A company can choose to increase the current loan amount: in this case, the additional money that it has available can be used, for example, to make new investments.
A final common goal of refinancing is to consolidate several loans. In this case, the company replaces several credit products with a single loan, often at an interest rate lower than the current average.
Unlike internationalization or digitization, refinancing does not involve any operational risk. Indeed, the success of refinancing does not depend on the success of a new investment.
However, there are a number of costs related to refinancing. On the one hand, the costs for the early termination of a contract and, on the other, a commission for the new loan.