# Step-by-Step Guide to Refinancing Business Debt with a Term Loan Refinancing business debt with a [term loan](/loans-and-financing/term-loans/) means using a new lump-sum loan to pay off existing debts and replace several payments with one predictable schedule. List your current debts, compare term loan offers on fees and total cost, gather your documents, apply, then use the proceeds to pay off the old debts. By [Capital Gurus Editorial Team](https://capitalgurus.com/editorial-policy/) · [Business Loans](https://capitalgurus.com/blog/category/business-loans/) · Published August 8, 2026 [See your financing options](https://capitalgurus.com/apply/) — soft credit pull only, no obligation ### Key Takeaways - A term loan can help streamline multiple business debts into a predictable repayment plan. - Eligibility for refinancing depends on your business’s financial strength and credit history. - Refinancing with a term loan may lower payments or improve cash flow but comes with trade-offs. ## What Does It Mean to Refinance Business Debt? Refinancing business debt means using a new loan—often with different terms—to pay off some or all of your existing business debts. The goal is typically to consolidate several payments into one, reduce your interest expense, or give your business more breathing room through a different payment schedule. ### Common Business Debts That Get Refinanced - **Lines of credit:** Flexible financing but often with high interest rates if balances are carried. - **Merchant cash advances:** Short-term, high-cost funding repaid through a percentage of daily sales. - **Equipment loans:** Used to finance business machinery or vehicles; may offer better rates as collateralized debt. - **Business credit cards:** Remodel high-interest revolving debt into a structured loan. - **Other short-term loans:** Including bridge loans or working capital advances. ### Why Business Owners Consider Refinancing - **Lower monthly payments:** Spreading repayment over a longer period can free up cash flow. - **Securing lower interest rates:** If your business has improved financially, you may qualify for better rates (source: [Federal Reserve, 2023](https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022.htm)). - **Simplifying finances:** Multiple debt payments are consolidated into just one. - **Changing loan structure:** Shifting from variable to fixed rate, or adjusting payment terms for predictability. ## How Term Loans Work for Debt Refinancing A **term loan** is a lump sum loan repaid over a fixed period agreed at closing. The interest rate may be fixed or variable, and payments are typically made monthly. ### Repayment Structure and Key Features - Loan amount and repayment term are set at closing. - Interest rates vary by provider, depending on qualifications and market conditions, subject to approval. - Payments are predictable, helping you plan cash flow. > **Definition:** A business term loan is structured financing with a set payback period and regular installments, and may be used to refinance existing business debts. ### Comparison Table: Refinancing Options | Type of Refinancing | Repayment Structure | Rate Range (subject to approval) | Best For | |---|---|---|---| | Business Term Loan | Fixed payments over a set period | Varies by provider | Predictability, debt consolidation | | Business Line of Credit | Flexible draw and repay cycle | Varies by provider | Varied, ongoing needs | | Merchant Cash Advance Refinancing | Daily/weekly payments, often with a factor rate | Varies by provider | Short-term needs, rapid repayment | ## Pros and Cons of Using a Term Loan to Refinance Business Debt ### Potential Benefits - **Simplified payments:** One regular payment instead of juggling several. - **Possible savings on interest:** If your new loan has a lower rate or better terms, you may pay less over time (subject to approval). - **Improved cash flow:** Spreading payments over a longer term can lower your monthly obligations—helpful if you’re managing tight business finances. ### Key Drawbacks to Consider - **Fees:** Many lenders charge origination, application, or closing fees when setting up a term loan. - **Total interest over time:** A lower monthly payment often means a longer repayment period, which can increase the total interest you pay. - **Possible collateral requirements:** Some term loans require business or personal assets to secure the loan. ### Example Scenarios - **When refinancing helps:** You have several short-term debts at high interest rates and qualify for a lower-rate term loan, reducing your overall payments and simplifying your obligations. - **When refinancing isn’t ideal:** The new loan’s fees and longer term would result in paying more interest than continuing to pay off your current debts. ## Eligibility Criteria: What Lenders Look For Lender requirements vary, but these are the most common factors: - **Credit score:** Both your personal and business credit histories are considered. Many lenders set a minimum credit score, though some work with lower scores. - **Time in business:** Many lenders prefer an established operating history. Startups may find options more limited. - **Revenue:** Many lenders set a minimum annual revenue requirement, and it varies by lender. - **Debt service coverage ratio (DSCR):** This measures your cash flow available to pay current debt. Many lenders prefer a DSCR of 1.25x or more. *(DSCR = net operating income / total debt service)* ### Documentation Commonly Required - Recent business tax returns - Personal tax returns for owners - Financial statements (profit and loss, balance sheet) - Debt schedule of existing business loans - Business formation documents and photo ID ### How Eligibility Differs Among Lenders Conventional banks generally require stronger credit and more financial documentation than alternative or online lenders. Online platforms and funding solutions providers may help you access a broader range of options if you don’t meet the strictest criteria. ## Step-by-Step Process to Refinance with a Term Loan 1. **Evaluate your current debts:** List your outstanding balances, interest rates, and monthly payments. Calculate if refinancing would reduce your total cost and improve cash flow. 2. **Research and compare term loan offers:** Look at interest rates, terms, fees, and repayment options from multiple sources. Remember, rates and approval are subject to review and qualification. 3. **Gather financial documentation:** Prepare tax returns, financial statements, and a list of debts. This will streamline your application. 4. **Apply and review loan documents:** Submit your application; carefully review all disclosure documents, paying close attention to repayment terms, fees, and any covenants (conditions you must meet while the loan is outstanding). 5. **Repay original debts:** Once the term loan funds are received, use the proceeds to pay off your existing business debts as agreed. ## Key Considerations and Common Pitfalls ### Calculating Total Repayment Costs Don’t focus only on the monthly payment. Use a loan cost calculator or worksheet to estimate your total repayment, including interest and all fees. The [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/consumer-tools/educator-tools/adult-financial-education/decision-tree-loan-options/) offers educational tools to help. ### Identifying Fees - **Origination fees:** Charged upfront by some lenders for processing your loan. - **Prepayment penalties:** Fees for paying off your loan early; make sure you understand these before committing. - **Closing costs:** Additional charges for legal, documentation, or administrative services. ### Reviewing Loan Covenants and Terms Some term loans come with requirements about how you run your business (like maintaining certain financial ratios or not taking on additional debt). These covenants can impact your daily operations and should be reviewed closely. ### Impact on Credit and Future Borrowing Applying for a new loan involves a credit review by each lender you apply with. If you manage the new loan well, it may improve your business’s credit profile over time. Be aware, though, that increased debt or missed payments can negatively impact your future borrowing options. ## Resources and Next Steps for Small-Business Owners ### Where to Compare Offers - Traditional banks and credit unions - Online lending platforms - Business funding solution providers and brokers ### Why Consider a Business Funding Solutions Provider? These professionals may help you access a wider range of loan types and structures—even if you don’t qualify for conventional bank loans. They can also help you evaluate loan offers beyond headline interest rates, including terms and fees. Note that such providers are not direct lenders; they work with a network of lending partners. ### Suggested Questions to Ask Before Refinancing - Will the new payment schedule free up enough cash flow to justify the cost? - What are all the fees and total interest costs involved? - Are there prepayment penalties or restrictions on paying off the new loan early? - How will this affect my business and personal credit scores? - What happens if I miss a payment under the new loan? Careful comparison and planning are key when you refinance business debt with a term loan. By evaluating your current debts, comparing offers, and understanding the true costs and implications of a new loan, you’ll be in a stronger position to make the best financial decision for your business’s future. This article is for informational purposes only and is not financial, legal, or tax advice. Funding products, rates, and terms vary and are subject to approval. Capital Gurus is headquartered in Las Vegas, Nevada. Example: Say a landscaping company carries a business credit card balance and a short-term loan with different due dates. A term loan that pays off both leaves one regular payment, but the owner should check whether the longer term and the setup fees mean more total interest than paying the old debts down. Example: Picture a restaurant owner who lists every balance, rate and monthly payment on one sheet before applying. With that debt schedule, tax returns and financial statements ready, the owner can compare offers on total cost, not just the monthly payment, and pay off the old debts once the provider funds the term loan. Decisions from some providers the same day, depending on the provider. [Get my options](https://capitalgurus.com/apply/) · [Call (725) 425-4307](tel:+17254254307) ## Frequently asked questions ### What types of business debts can I refinance with a term loan? You can typically refinance a range of business debts with a term loan, including lines of credit, merchant cash advances, equipment loans, business credit cards, and other short- or medium-term loans. The key is that the new lender must agree to pay off these debts as part of the loan proceeds. Always confirm with the term loan provider which debts they allow to be refinanced. ### How does refinancing with a term loan affect my credit? Applying for new credit and taking on a new loan can affect your credit profile for a while, depending on how each lender reviews your credit. If you manage the new loan responsibly—making payments on time and reducing total outstanding debt—it can improve your business and personal credit over time. However, missing payments or accumulating too much debt may negatively impact your credit profile. ### What documents do I need to apply for business debt refinancing? Most lenders will ask for recent business and personal tax returns, financial statements like profit and loss statements and balance sheets, a list of your current debts (debt schedule), business organization documents, and the government-issued IDs of business owners. Different lenders may have additional or specific requirements. ### Are there fees when refinancing business debt with a term loan? Yes, there are often fees associated with refinancing business debt, such as loan origination fees, application fees, closing costs, and sometimes prepayment penalties. Fees can vary significantly between lenders, so it’s important to understand and compare the total cost before accepting any term loan offer. ### How long does it take to refinance business debt with a term loan? The time frame to refinance can vary by lender. With banks, the process may take several weeks due to more extensive review and documentation. Some online lenders and business funding solution providers may help you access financing in as little as a few business days, though timelines depend on your preparedness and the complexity of your financials. ### Can I refinance merchant cash advances with a term loan? In many cases, yes—a term loan may be used to pay off existing merchant cash advances, especially if you qualify for better loan terms. This can help replace high-frequency, daily payments with a single, predictable monthly payment structure. However, each lender’s policy differs on what types of obligations can be repaid, so confirm eligibility in advance. ## Related reading - [The Pros and Cons of Your Business Taking on Private Investors](https://capitalgurus.com/blog/private-investors-pros-and-cons/) - [How Many Business Loans Can You Get: A Comprehensive Guide to Financing Options](https://capitalgurus.com/blog/how-many-business-loans-can-you-have/) - [How Hard is it to Get a $100k Business Loan?](https://capitalgurus.com/blog/how-to-get-a-100k-business-loan/) - [business term loans](https://capitalgurus.com/loans-and-financing/term-loans/) ## Next steps - [See your financing options](https://capitalgurus.com/apply/) — One application, soft pull only - [Business loan calculator](https://capitalgurus.com/calculators/business-loan-calculator/) — Estimate a payment - [Talk to a funding advisor](https://capitalgurus.com/contacts/) — Questions first? Or call a funding advisor at [(725) 425-4307](tel:+17254254307) ## One application. Every funding option. Skip the lender-by-lender chase. One application, three months of bank statements, and a dedicated advisor who brings the offers back to you side by side — terms set by the provider, disclosed before you sign. - [Apply now](https://capitalgurus.com/apply/) - [Call (725) 425-4307](tel:+17254254307) About 5 minutes, soft credit pull only · [talk to a funding advisor](https://capitalgurus.com/contacts/) --- Source: https://capitalgurus.com/blog/refinance-business-debt-with-term-loan/ · Capital Gurus is not a lender.