Refinancing out of expensive short-term business debt

When short-term debt overstays

Short-term finance is designed to solve a short problem. Trouble starts when it becomes a permanent feature: a loan rolled into another, an advance topped up before it is repaid, a second facility to cover the first. The business spends a large share of its revenue on repayments, and the cost of money becomes one of its biggest expenses.

How refinancing helps

Refinancing replaces the problem facilities with one loan on a longer term and less frequent repayments. The immediate effect is cash flow relief: instead of several daily debits, there is one manageable repayment, or with a property-secured loan where interest is prepaid or added to the loan, possibly nothing to pay during the term. That breathing room is what lets a business stabilise.

Is the business viable?

Before refinancing, ask a hard question: if the short-term repayments disappeared, would the business make money? If yes, refinancing addresses a structural problem and can work well. If no, refinancing postpones the issue and adds to the debt. Review margins, pricing and costs with your accountant first.

Choosing the new facility

If the total debt is modest relative to turnover and bank statements are reasonably healthy, an unsecured refinance on a longer term may work. If the debt is larger, the account is under strain or credit has suffered, a property-secured refinance is usually the reliable path. Property-secured loans run between $20,000 and $5,000,000, without a valuation before approval. See business debt consolidation and business loan refinance.

Doing the numbers

List each facility with its balance, repayment and frequency, and request written payout figures. Add the total weekly repayments now and compare with the proposed new repayment. Calculate total cost under both scenarios. The repayment calculator helps compare.

What lenders need

Payout figures for every facility, recent bank statements, identification, a short explanation of how the debts built up and what has changed, and for property-secured loans, the property details. Lenders are reassured by owners who understand the cause and have a plan.

Avoid the restack

The biggest risk after refinancing is drifting back into short-term debt. Use the freed-up cash flow to build a buffer, set up a separate tax account, and if you need flexible funding, use one line of credit rather than new advances. Our guides on building a cash buffer and loan stacking warning signs cover the habits that keep you out.

An illustrative example

A transport company carried three short-term loans with daily debits that took a large share of its takings. A second mortgage over the owners’ investment property paid out all three, with interest added to the balance. With daily cash flow restored, the business caught up on fuel accounts and built a buffer, then refinanced with a bank a year later.

Negotiating with existing lenders

Before refinancing, call each short-term lender. Ask for a written payout figure, whether any early settlement discount applies, and whether they would agree to a temporary reduced repayment while the refinance is arranged. Some will help, especially if you explain that a refinance is underway. Keep notes of every call, and do not stop repayments without an agreement in place, because a default listing would make the refinance harder.

After the refinance

Close the paid-out facilities properly and confirm in writing that each is settled. Check your credit reports a couple of months later to make sure they show as closed. Then put the freed-up cash flow to work: a buffer, a tax account and a plan to keep it that way.

Reset your repayments

Fill in the short form and list your current facilities. Asking involves no credit check, a real lender reads it, and one team handles it. Explore refinancing.