Many businesses are trapped in high-cost financing cycles. Here is how to refinance and reduce your cost of capital significantly.
If your business is carrying high-cost loans -- merchant cash advances, short-term loans, or credit card balances with double-digit rates -- refinancing to lower-cost debt can significantly improve your monthly cash flow and long-term financial health. Here's how to do it strategically.
Why Businesses Refinance Debt
Businesses often take on expensive debt when they need capital quickly and don't yet qualify for traditional financing. Over time, as revenue grows and credit improves, better options become available. Refinancing high-cost debt can:
- Lower your effective interest rate
- Reduce monthly payment amounts
- Simplify multiple payments into one
- Extend repayment terms for breathing room
- Free up cash flow for growth investment
Types of Debt Worth Refinancing
- Merchant cash advances: Factor rates of 1.2--1.5 equate to 40%--150%+ APR
- Short-term business loans: 6--18 month terms at 20%--60%+ APR
- Business credit cards: Typical APRs of 20%--30%
- Multiple small loans: Consolidating simplifies cash flow management
Refinancing Options
SBA 7(a) Loans
SBA 7(a) loans can be used for debt refinancing when the original debt was used for eligible business purposes. With rates of prime + 2%--4% and terms up to 10 years, SBA refinancing offers dramatic savings over MCAs and short-term loans. You'll need 2+ years in business and 680+ credit.
Term Loans from Banks or Online Lenders
A term loan at 10%--25% APR can still represent major savings over MCA-level costs. Online lenders like those in the Approvd network can fund refinancing loans in 2--5 business days.
Business Line of Credit
A business line of credit can be used to pay off an MCA balance in full, then drawn on as needed at a much lower cost. This is particularly useful if your high-cost debt came from a revolving need.
How to Refinance Business Debt: Step by Step
- Calculate your current cost: Add up all interest, fees, and factor costs across your existing loans. Use our business loan calculator to compare.
- Check prepayment penalties: Some MCAs and short-term loans have prepayment clauses -- factor these into your savings calculation
- Improve your application profile: Pull credit reports, clean up any errors, and gather 3--6 months of bank statements
- Apply for refinancing: Target lenders whose qualification criteria your business meets
- Use proceeds to pay off high-cost debt immediately
Common Mistakes to Avoid
- Refinancing into a longer term without reducing rate -- you may pay more total interest
- Taking additional cash out during refinancing before confirming you can service the new payment
- Refinancing into another MCA (debt stacking)
Approvd helps business owners identify lower-cost refinancing options across our lender network. Explore refinancing offers with no impact to your credit score.
Frequently Asked Questions
Can I refinance a merchant cash advance?
Yes. A term loan or SBA loan can be used to pay off an MCA balance. Check whether your MCA has a buyout discount for early payoff -- many do.
How much can I save by refinancing?
It depends on your current rate and the new rate. Moving from a 60% APR MCA to a 15% term loan on $100,000 saves roughly $45,000 per year in interest costs.
Why Business Debt Refinancing Makes Sense
Business debt refinancing — replacing existing high-cost loans with new financing at lower rates or better terms — can be one of the highest-ROI financial moves available to a growing business. If you borrowed money at 40–80% APR from an alternative lender when you were newer and less established, and your business has since grown and your credit profile has improved, you may be able to replace that debt at 15–25% APR or lower. The savings can be substantial and immediate.
The math is straightforward: a $100,000 loan at 60% APR over 18 months costs roughly $55,000 in total interest. The same loan refinanced at 20% APR over 3 years costs approximately $33,000 in interest — a savings of $22,000. Even accounting for any prepayment penalties and fees on the new loan, refinancing high-cost debt can dramatically improve your cash flow and reduce total borrowing cost.
When to Refinance
The best time to refinance is when your business has strengthened since you originally borrowed. Indicators that refinancing may now be possible at better terms include: your credit score has improved by 50+ points, your revenue has grown significantly (30%+ increase), you've been in business 12+ additional months, you've paid down existing debt without defaults, or the rate environment has improved since you borrowed.
Don't wait until you're in financial distress to refinance — by then, your options narrow considerably. Refinance from a position of strength, when your business financials are at their best, to access the most competitive terms available.
Refinancing Options
| New Loan Type | Replaces | Rate Range | Requirements |
|---|---|---|---|
| SBA 7(a) Loan | MCA, high-rate term loans | 9–12% APR | 2+ yrs, 650+ score, profitability |
| Bank Term Loan | Online high-rate loans | 7–12% APR | 2+ yrs, 680+ score, strong docs |
| Online Term Loan | MCAs, very short-term debt | 15–35% APR | 6+ mos, 600+ score |
| Business Line of Credit | Revolving MCA positions | 12–35% APR | 1+ yr, 620+ score |
Watch Out for Prepayment Penalties
Before refinancing, review your existing loan agreements carefully for prepayment penalties. MCA agreements often include "no prepayment discount" clauses — meaning you owe the full contracted amount regardless of when you pay. Some term loans charge 1–5% of the remaining balance as a prepayment fee. Factor these costs into your refinancing calculation to ensure the new loan's savings exceed the penalty cost.
Also understand that MCAs are technically purchases of future receivables, not loans — which means they may not have explicit prepayment provisions. Review the specific language of your MCA agreement carefully, and if in doubt, consult with a business finance attorney before proceeding.
Refinance Your Business Debt with Approvd
Approvd helps businesses refinance high-cost debt by connecting them with lenders offering competitive replacement financing. Submit one application, receive multiple offers, and see exactly how much you can save by restructuring your existing debt obligations.