refinance 101

Refinance 101: How to Refinance Your Existing Debt and Save Money

Like many family entertainment center owners, over the years you may have taken on debt to grow your business. If you have a debt repayment that pinches your cash flow, you may feel like you’re never going to generate the kind of free cash to meet the needs of your center and lifestyle.

Are your monthly loan payments and rates a burden on your business? Would you like to increase your monthly cash flow and use your savings to upgrade your facility or hire additional staff? Are you curious to see if you could be saving money each month? If you answered yes to any of these questions, then it’s time to explore refinancing.

If your entertainment center has debt, you should consider these 5 benefits of refinancing:

1) Refinancing debt can improve cash flow. The result is often significant monthly savings, which can have major implications for improving your business cash flow, and cash flow is the backbone of your business.

By refinancing your current debt, you could lower your monthly payment, which, in some cases, will free up cash, allowing you to leverage growth through additional borrowing. Alternatively, if your plans involve minor purchases in the future, you could simply use the monthly savings in cash flow to make the purchases.

2) Refinancing can alleviate the burden of balloon payments. Many lenders offer lower interest rates and seemingly longer amortization terms, but they are combined with a balloon provision. A balloon payment is when one large payment is made at the end of the loan’s term. While this can give you years with a smaller monthly payment, it also means you will be faced with a significant lump sum payment at the end of the term. A typical balloon structure would be a loan with a 10-year amortization / five-year balloon. Thus, your monthly payments are based on a 10-year loan term; however, the principal balance is due all at once at the end of Year Five.  Balloon payments create a looming financial obligation.

3) Refinancing protects against rising interest rates. Refinancing your debt may help you secure a lower interest rate and can also help protect your business from interest rate risk in the future. If your cash flow position is such that you can support a fixed rate option, you can lock in an interest rate that the business can afford and avoid the need to refinance the loan with adjustment periods or balloon structures in the future.

4) Refinancing can provide for better cash management. Refinancing your debt to obtain a longer loan term can reduce monthly payments and provide for better cash flow. For a growing business, cash flow is needed for operational growth and marketing.

A refinance solution under the SBA 7(a) program may be a 10-year loan. SBA 7(a) loans (under 15-year terms) do not have prepayment penalties. This gives you the cash flow flexibility to pay off your note early if you desire.

5) Refinancing to consolidate debt. Refinancing all, or a portion, of your debt obligations, allows you to combine some or all of your various loans into one easy monthly payment, so you have less to monitor and manage.

Live Oak Bank’s SBA 7(a) Loan Program

With the SBA 7(a) loan program, you can restructure your debt into a more manageable repayment plan. While not all debts are eligible for this program, if you meet the requirements, it is an easy way to reduce pressure from your lenders and start seeing more money flowing back into your business.

To be eligible for the SBA 7(a) loan program, you will need to meet the following qualifications:

  • Money secured from loans, borrowing, or investments must have been used for eligible business purposes.
  • The debt must be current. No defaults.
  • The monthly loan payment for the proposed plan must give at least 10% cash flow savings or the existing note must include a balloon payment.

If you meet the requirements of the SBA 7(a) loan program, we can help you create a plan that is much more manageable for you and your business. With a lower monthly loan payment, you can put the cash savings to work for you and focus on growing your business. Uses for the money could include training staff, marketing campaigns and new games and equipment. See your company reach the levels of success enabled by improved cash flow.

Call one of our Family Entertainment Center Lenders today to see if you’re eligible to refinance your current debt obligations.