Refinance a business loan: switching, extending or raising more

A large number of UK businesses still carry facilities from the pandemic-era schemes, and each behaves differently when you refinance.

• Bounce Back Loans. These carry a low fixed rate set by the scheme and can be repaid early without penalty. Refinancing one into commercial borrowing will almost always cost more, so it rarely makes sense unless it is part of a wider restructure. If repayments are the problem, the scheme's own Pay As You Grow options should be explored with your lender first.
• CBILS loans. Term loans were written for up to six years, so many are reaching their final years now. Facilities under £250,000 were written without personal guarantees, and the scheme restricted guarantees on larger ones. A commercial replacement may well require a director's guarantee, which is the single most overlooked cost of refinancing a CBILS loan.
• Recovery Loan Scheme loans. Details varied between phases of the scheme; the British Business Bank's Recovery Loan Scheme page sets out how it worked. Check your agreement for early repayment terms before assuming the switch is free.

New lenders count the repayments on these legacy loans in their affordability assessment even where they are not being refinanced, so a business with a bounce back loan it keeps still needs to show room for both.

1. Settlement figure. You ask the existing lender for a written redemption statement, valid to a specific date, showing the balance, accrued interest and any early repayment charge.
2. Application and offer. The new lender underwrites the business on its current figures and issues an offer that names the debt it will clear.
3. Security. If the old lender holds a debenture or a charge over property, the new lender will want it released, or will need a priority agreement if the old lender is staying in place for a different facility. Our guide to debentures and fixed and floating charges explains what is registered and why.
4. Completion. The new lender pays the old one directly, usually against an updated settlement figure on the day, and any surplus reaches your account.
5. Tidying up. The old lender files satisfaction of its charge at Companies House and releases any personal guarantee. Ask for the written release; guarantees do not always lapse automatically when a loan is repaid, particularly all-monies guarantees.

Delays usually happen at stages three and five. The SFS business debt consolidation case shows how a single property title requirement nearly stopped an approved £212,300 deal at completion, and why persistence between lender, borrower and solicitor matters.

The main alternatives to replacing a loan with another term loan are refinancing against equipment, refinancing against property, or renegotiating with the lender you already have.

• Against equipment:asset refinancing releases cash from vehicles and machinery, which can clear expensive unsecured debt with borrowing secured on the asset.
• Against property: a secured business loan can replace unsecured borrowing on a longer term; for owner-occupied or investment buildings see commercial property refinance. The property is at risk if repayments are missed.
• With your current lender: asking for a term extension, a payment holiday or a restructure may cost less than moving, and it avoids new legal work.

If you have an iwoca facility alongside other short-term debts, our guide on how to consolidate an iwoca loan into one business debt consolidation loan sets out the settlement figures to collect and how to compare the total cost.

Larger refinancings can use private debt funds.

A business can usually refinance if it can show affordability on today's trading, a clean record of repayments on the existing loan and a sound reason for the switch. Lenders look at:

• Affordability on current trading, not when the original loan was taken.
• How the existing loan has been run: missed payments or arrears are the first thing an underwriter notices.
• Why the business wants to refinance. Saving cost or funding investment is viewed differently from struggling to meet repayments.
• Security available and the credit history of the business and directors.

Refinancing a single business loan typically takes two to six weeks, longer where property security is involved. An unsecured like-for-like switch can move quickly once the new lender has accounts, bank statements and a redemption statement. Secured refinances take longer because the new lender needs a valuation, its own legal work and the release of the old lender's debenture or charge. The usual causes of delay are an existing lender slow to issue settlement figures, a deed of priority between lenders, title problems on the property and personal guarantees that need formal release. Asking for the redemption statement early, and having a solicitor ready, takes weeks off the process. If the deadline is fixed, a short-term bridging loan can sometimes clear the old lender while the longer-term refinance completes.

Refinancing can turn one expensive problem into a longer one. If the business cannot afford its current repayments because trading has fallen, a new loan on a longer term may only postpone the difficulty, and it can add a guarantee or security that did not exist before. Talk to your existing lender, and consider professional advice, before refinancing under pressure; our guide to funding a business through a downturn sets out what to do first when trading falls. Where the pressure comes from tax arrears, HMRC Time to Pay may be cheaper than new borrowing. If refinancing makes sense as part of expansion, our page on growth finance covers the wider picture.