Refinancing a Term Loan: When and how to do it

Refinancing a term loan can be a smart move for many investors, especially when circumstances change. Understanding the right moment to refinance, and how to do it effectively, can make a big difference to both cost and flexibility.

So what is actually involved in refinancing a term loan? At its core, it means replacing an existing loan with a new one. The goal is usually to find a loan with better conditions, such as a lower interest rate, more suitable terms or a repayment structure that reduces pressure on cash flow. For some, it also means consolidating several debts into a single agreement to simplify their finances.

Timing matters, and knowing when to refinance is just as important as understanding how to do it.

When to consider refinancing a Term Loan

Lower interest rates

Interest rates change for many different reasons. If your client took out a loan when rates were higher, there might now be an opportunity to secure a lower rate. This is often one of the most compelling reasons to refinance. A reduction in rate can significantly lower the total amount paid back, freeing up cash for other areas of the business or property development. Even a small rate decrease can have a meaningful impact, especially over the remaining life of the loan.

Better loan terms

Occasionally, the original terms of a loan no longer suit the borrower’s situation. Refinancing can offer a chance to negotiate terms that are more appropriate, such as switching from an interest only facility to a loan with capital repayments, or vice versa. It might also involve shortening or extending the term based on current objectives. More flexible terms can help your client stay on track or adapt to new goals more effectively.

Consolidating debt

If your client has taken out multiple loans from different lenders, refinancing gives them an opportunity to combine those into a single facility. This can make managing repayments far easier and remove the stress of juggling multiple due dates, rates and conditions. Furthermore, consolidating debt can also mean there is a single a single interest rate. As a result, in many cases the overall monthly cost may come down.

Reducing debt burden

For investors who are struggling with regular payments, refinancing can reduce the monthly repayment figure by extending the term or improving the interest rate. This doesn’t always mean paying less overall, but it can provide much-needed breathing space. For a business trying to stabilise or a property investor looking to hold a project for longer than originally planned, this flexibility can prove valuable.

How to refinance a Term Loan

Refinancing is not automatic and it’s important that your client is prepared and understands the steps involved.

Assess the current situation

The first step is reviewing the current loan. Look at the outstanding balance, interest rate, repayment schedule and any clauses related to early settlement. Understanding how much is owed and how the current structure works is essential before searching for a new solution.

Compare loan options

Once the current position is clear, it is time to look at new loans. However, not all loans are equal. Some might look good on the surface but carry fees or conditions that don’t suit the borrower’s circumstances.

Our Term Loan is interest only and has no early repayment charges. These loans provide secure funding for the British property industry and is ideal for supporting new and expanding businesses. Our Term Loans can also be used for asset management situations or to release working capital. Furthermore, they are available with an LTV up to 70% and additional advances can be made as income is improved.

Prepare documentation

Lenders need to see financial details, credit history and background on the property or project if one is involved. Ensuring all documents are accurate and up to date can help avoid delays. If the refinancing is time-sensitive, for example, because an existing loan is about to end, having everything in order from the outset becomes even more important.

Apply for the new loan

With the right product selected and the paperwork ready, the application can begin. A lender will assess affordability, asset strength, security and the exit plan. We always aim to make decisions in principal quickly, and obtaining the loan can be far quicker than applying for traditional property finance, such as a mortgage.

Pay off the old loan

Once the new loan is approved and drawn, the funds will be used to settle the outstanding balance of the old loan. Any early repayment charges or exit fees need to be covered at this point. After the old facility is closed, the borrower continues with the new loan under the agreed terms.

Key considerations before refinancing

Credit score

A borrower’s credit score can influence the types of loans available and the interest rate they will be offered. While bridging loans are sometimes less reliant on credit profiles than traditional financing, it is still essential we check this area. Any missed payments or recent defaults could raise concerns when processing a term loan application.

Early repayment charges

Some loans carry penalties for being paid off early. These can cut into the savings made by refinancing and should be weighed up carefully. Not every loan has these fees, but when they do appear, it’s important to factor them into the overall cost of refinancing. However, our Term Loan does not have any early repayment charges.

Loan terms

Refinancing often goes beyond simply switching for a better rate. The overall structure of the new loan needs to suit the borrower’s plan. That includes the repayment period and any fees or conditions. A well-structured loan can help keep things on track and support your clients’ business objectives.

Final thoughts – why refinancing a term loan can be worthwhile

Refinancing a term loan can be worthwhile in order to improve the financial situation of your clients. That could mean lower interest rates, more manageable repayments, or simply a loan that fits better with current circumstances.

However, starting the process early is important. Waiting until the last minute can mean fewer options and higher costs. Knowing what the early repayment charges are and how they impact any potential savings is key to making the right decision.

It’s also important to look beyond just the headline rate. Sometimes a loan with a slightly higher interest rate but better terms or repayment flexibility can work out better in the long run.

Done properly, refinancing a term loan can ease the burden on your clients’ business, save money, and help keep things moving in the right direction. If you have any questions about how our Term Loans can help your clients’ business, don’t hesitate to get in touch.