Business debt refinancing works by obtaining a settlement figure for an existing facility, applying to a new provider for a replacement, and using the new funds to repay the old agreement in full. The business ends up with a new loan on new terms, usually a different rate, term or security position. The whole sequence typically takes from a few days for a simple unsecured loan to several weeks where property is involved.
In this guide
The seven steps
- 1
Request a settlement figure
Ask the existing lender in writing for the amount needed to close the account on a given date. The figure includes the outstanding balance, accrued interest to that date and any early repayment charge. It usually has an expiry date, after which it must be re-requested.
- 2
Gather the paperwork
Most providers ask for three to six months of bank statements, the latest filed accounts, management accounts for larger facilities, identification for directors, and the settlement letter itself. Our guide to the documents needed to refinance business debt covers each item.
- 3
Apply and receive an indicative offer
The new provider assesses affordability and credit history, then issues terms in principle. These state the amount, rate, term, fees and any security or personal guarantee required. They are not binding on either side at this stage.
- 4
Underwriting and valuation
The provider verifies the information supplied. For secured lending, a valuation of the property or asset is instructed and legal checks begin. This is the stage where applications most often slow down or change shape.
- 5
Formal offer and legal documents
A binding offer is issued with the loan agreement, any security documents and the personal guarantee deed. Guarantors are often required to take independent legal advice before signing, which adds a few days.
- 6
Completion and redemption
Funds are released. In most refinances the new provider pays the old lender directly against the settlement figure, with any surplus going to the business. The old facility is redeemed and the account closed.
- 7
Confirm closure and tidy up
Obtain written confirmation that the old account is closed and any security released. Cancel the old direct debit, update the cash-flow forecast and diary the first payment on the new facility.
Whether a business is refinancing one facility or several, the sequence is the same. Our business debt refinancing page covers the broader options, and business loan refinancing focuses on replacing a single term loan.
The costs that appear along the way
A refinance that looks cheaper on the headline rate can be dearer once every charge is included. These are the costs to expect, in the order they arise.
- Early repayment charge on the old facility. Many business loans charge a fee, or a number of months' interest, for settling early. It appears in the settlement figure.
- Arrangement fee on the new facility. Typically a percentage of the amount borrowed. If it is added to the loan, interest is charged on it for the whole term.
- Valuation fee. Payable up front on secured lending, and usually not refundable if the application does not proceed.
- Legal fees. The provider's legal costs are often passed to the borrower on secured facilities, and the business will usually need its own solicitor as well.
- Independent legal advice for guarantors. A separate fee for each director signing a personal guarantee.
- Broker or introducer fees. Where an intermediary is involved, any fee or commission must be disclosed before you commit.
- Interest over a longer term. Not a fee, but the largest cost of all if the new term runs for longer than the old one. A lower monthly payment stretched over more months can mean a higher total repaid.
Add the one-off costs to the comparison
Suppose refinancing a £50,000 loan would save £150 a month in interest. If the early repayment charge and new arrangement fee together come to £2,400, the business is sixteen months in before it breaks even. If it expects to repay or refinance again before then, the switch may not be worth making. These figures are illustrative only.
How long each stage takes
Timings vary widely between providers, but a realistic picture looks like this.
- Settlement figure: same day to ten working days, depending on the lender.
- Unsecured refinance, documents ready: indicative terms within a day or two, completion within one to two weeks.
- Secured refinance against property: four to eight weeks is common, driven by valuation and legal work. Leasehold property, title defects or a second charge behind an existing lender all add time.
- Asset-backed refinance: two to four weeks, depending on how quickly the asset can be inspected and valued.
The single biggest cause of delay is incomplete paperwork. A settlement figure that has expired, a missing bank statement or an unsigned declaration can each add a week.
What lenders check
Every provider has its own criteria, but underwriting almost always covers the same ground.
- Affordability. Can the business meet the new repayment from its normal trading cash flow, with a margin? Bank statements and accounts are read for this before anything else.
- Credit history. Of the business and, for limited companies, of the directors personally. Missed payments, County Court judgments and unpaid HMRC liabilities weigh heavily. Our guide on whether a business can refinance with bad credit explains how providers treat each issue.
- Purpose. Refinancing to reduce cost or simplify repayments is viewed differently from refinancing to release cash from an asset, which is seen as new borrowing.
- Security and guarantees. What the provider can rely on if the business cannot pay. Unsecured limited-company lending almost always carries a personal guarantee.
- Existing commitments. The provider looks at everything else the business owes, not just the facility being refinanced.
For sole traders and small partnerships borrowing up to £25,000, the new agreement is regulated consumer credit, so the provider must hold the relevant Financial Conduct Authority permission and follow its rules on assessment and disclosure. Limited companies generally sit outside that regime.
Common mistakes
- Comparing the rate, not the total. The number that matters is everything repaid over the life of the loan, including fees. The debt comparison tool is built to show it.
- Letting the settlement figure lapse. If completion slips past the expiry date, a new figure is needed and it may be higher.
- Forgetting the old direct debit. A double payment in the month of completion is a common and avoidable cash-flow shock.
- Signing a personal guarantee without reading it. Check the cap, whether it covers future borrowing and how it can be released.
- Refinancing to release cash with no plan for it. Borrowing against an asset to fund losses rarely ends well. If the business is in difficulty, free help from Business Debtline should come before a new application.
- Including cheap debt. A low-rate scheme loan or well-priced asset finance is often better left where it is.
If you would like to talk through where your business sits in this sequence, you can make an enquiry. We can explain the options that may be relevant and, where appropriate and at your request, may be able to introduce you to third-party finance providers.
Key takeaways
- Refinancing runs from settlement figure to redemption in seven steps, and the paperwork stage decides how fast it goes.
- Early repayment charges, arrangement fees, valuation and legal costs can outweigh a modest rate saving, so calculate the break-even point.
- Unsecured refinances can complete in days; secured ones usually take weeks.
- Lenders focus on affordability, credit history, purpose, security and the business's other commitments.
- A longer term lowers the monthly payment but can raise the total repaid, and cheap existing debt is often best left alone.
Related guides
- Documents needed to refinance business debt. What each item is for and how to prepare it.
- Business debt consolidation vs refinancing. Which one your situation actually calls for.
- Secured vs unsecured business finance. How security changes cost, speed and risk.