Why refinance? Benefits & risks

Refinancing is replacing one or more existing business loans with a new facility. Typical objectives include lowering monthly repayments, reducing the interest rate, consolidating multiple debts into a single repayment, releasing cash, or moving from short-term/high-cost debt to a longer-term loan.

Benefits:

• Lower monthly cash outflow if you secure a lower rate or extend term.
• Potentially lower overall cost if fees and rates are favourable.
• Simpler administration by consolidating multiple facilities.
• Opportunity to change security terms or remove business stress.

Risks:

• Longer term loans can increase total interest paid even if monthly payments fall.
• Arrangement fees, valuation, legal and broker fees can erode savings.
• Early repayment charges (ERCs) or break costs from existing lenders.
• New security or personal guarantees may be required.

Want to see how savings stack up for your business? Get a Free Eligibility Check.

Key terms you must understand

• Principal — the amount you borrow. Tip: use the same principal when comparing quotes.
• Term — repayment length (months/years). Tip: longer terms lower monthly payments but can raise total interest.
• Interest rate — headline rate, usually quoted annually and may be fixed or variable.
• APR (Annual Percentage Rate) — attempt to show the overall yearly cost including some fees; helpful for comparison when provided.
• Arrangement / processing fee — up-front cost added to loan or taken from proceeds.
• Early Repayment Charge (ERC) — fee for paying off a loan early; can wipe out refinance savings.
• Security — asset or charge required (property, debenture). Tip: secured loans often offer lower rates but increase risk to assets.
• Total amount repayable — the full sum you will pay back including interest and fees.

What to include in every refinance quote

A complete refinance quote should be itemised and written. At a minimum each quote should show:

• Loan amount and stated purpose
• Interest rate (fixed or variable) and whether it can change
• APR (if provided) or explanation why not
• Term in months/years
• Arrangement, valuation, legal or placement fees
• Monthly repayment schedule and any balloon payment
• Early repayment charges and how they are calculated
• Security requirement and any personal guarantees
• Total amount repayable

Only compare quotes that include the above — otherwise you’re comparing apples to oranges. If a lender refuses to put costs in writing, treat that as a red flag.

Comparison table (quick scan)

Use a table like the one below to scan key differences quickly. Replace sample numbers with the figures you receive.

Caption: Compare APR (if given), arrangement fees, ERCs and total repayable — not only the headline rate.

How to calculate the total cost of credit — step‑by‑step (worked example)

Conceptually: Total repayable = (monthly repayment × number of months) + upfront fees + any balloon or exit fees. APR aims to standardise this into a single annual figure but can be omitted by many commercial lenders — so do the math yourself if APR isn’t shown.

Worked example (illustrative)

Assume you want to refinance an existing loan with these terms:

• Loan amount (principal): £100,000
• Nominal interest rate: 7.0% fixed (annual)
• Term: 5 years (60 months)
• Arrangement fee (up-front): £1,000
• No balloon payment

Step 1 — calculate the monthly repayment (standard amortising loan formula):

Monthly rate r = 0.07 / 12 = 0.0058333. Number of payments n = 60.

Monthly payment = [r × PV] / [1 − (1 + r)^−n].

Using the formula, monthly repayment ≈ £1,980 (rounded).

Step 2 — total of repayments: £1,980 × 60 = £118,800.

Step 3 — add arrangement fee: £118,800 + £1,000 = £119,800 total repayable.

So the effective cost of borrowing is the difference between total repayable and principal: £119,800 − £100,000 = £19,800 over five years.

Notes:

• If the lender charges valuation, solicitor, or broker placement fees, include them in the upfront costs.
• If you plan to repay early, calculate existing lender ERCs and the new lender’s ERCs because they affect savings.
• When APR is provided, compare APRs — but still verify the underlying fees and ERCs.

Want us to run these calculations for your actual quotes? Get Quote Now — Free Eligibility Check and we’ll match you to lenders/brokers who will provide itemised comparisons.

Compare quotes: practical checklist & red flags

Use this checklist when you receive multiple offers:

• Are all quotes based on the same principal and assumed fees?
• Compare APRs where given and compute total repayable where APR is absent.
• Check for arrangement, valuation, legal and broker fees — are they added to the loan or paid up-front?
• Confirm ERCs: amount, time period and calculation method.
• Check whether quotes are conditional (subject to credit, valuations or further due diligence).
• Verify security and personal guarantee requirements.
• Ask whether the rate is fixed and for how long; what happens after any fixed term ends.

Red flags

• Verbal-only quotes with no written cost breakdown.
• Very low introductory rates with large backloaded fees or high ERCs.
• Pressure to accept an offer urgently without time to check the small print.
• Missing information about total repayable or unclear fee structure.

Getting accurate quotes faster: documents & data lenders need

Gathering these in advance speeds up comparisons and increases quote accuracy:

• Management accounts or latest business accounts (2–3 years if available)
• Recent bank statements and cashflow forecasts
• Details of existing loans (statements showing balances and ERCs)
• Information about security/asset valuations (property, equipment)
• Basic business details and directors’ ID (will be needed later)

Having this ready means lenders/brokers can provide more precise, written quotes rather than indicative estimates.

How UK Business Loans helps

We’re an introducer that connects UK businesses seeking finance (loans from £10,000 and up) with lenders and brokers who can provide refinance solutions. Our process is fast, simple and free to use:

1. Complete a short enquiry — tell us loan size, purpose and contact details (2 minutes).
2. We match you to lenders/brokers who specialise in your sector and needs.
3. Partners contact you with itemised quotes so you can compare APR, fees, ERCs and total repayable.
4. You choose which quote to proceed with — there’s no obligation to accept any offer.

We also provide guidance on which quote features to probe and flag likely hidden costs. For further reading on refinancing options you might find useful, see our page on refinance loans.

Ready to compare multiple, tailored quotes? Get Quote Now — Free Eligibility Check.

Frequently asked questions

What’s the difference between APR and interest rate?

The interest rate is the cost of borrowing expressed as a percentage per year. APR attempts to include certain fees to show the annual cost — useful for comparisons when provided. Many commercial lenders do not publish APRs, so calculate total repayable if APR is absent.

How long are refinance quotes valid?

Validity varies. Some quotes are indicative for 7–30 days; firm offers often depend on valuation, underwriting and credit checks. Always check the expiry date on the written quote.

Will making an enquiry through UK Business Loans affect my credit score?

No. Submitting a free enquiry via UK Business Loans will not affect your credit score. Lenders or brokers may perform checks later if you decide to proceed with an application.

Can I refinance if I’ve been refused before?

Potentially. Different lenders and specialist brokers have different criteria. We can match you to partners who specialise in complex or adverse-credit cases — complete a quick enquiry to see options.

Compare refinance quotes today

If you want clear, itemised refinance quotes that show the true total cost of credit, start with a short enquiry. We’ll match you to lenders and brokers who can provide written offers so you can compare APR, fees, ERCs and total repayable side-by-side.

Get Quote Now — Free Eligibility Check — it’s free, quick and no obligation.

Important notice

UK Business Loans is an introducer that connects businesses with lenders and brokers. We do not lend money and we do not provide regulated financial advice. All finance offers are provided by third parties and are subject to eligibility checks, underwriting and contract terms. Figures and examples on this page are illustrative only and should not be treated as quotes. Always read lender terms carefully before committing.

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