When debts pile up, refinancing — replacing them with a new, bigger facility — can look like a clean solution. Sometimes it is; often it just buys time at a growing cost.
The trap
Refinancing that lowers your total cost and gives you a genuinely affordable schedule can be sensible. Refinancing that simply moves the shortfall forward, adds fees, and leaves you with a larger debt is a trap dressed as a rescue.
Test it against the business
Ask whether the underlying business can afford the new arrangement out of real cash flow. If the answer depends on optimistic assumptions, the refinancing is postponing a reckoning, not resolving it.
Arrangements are often cheaper than refinancing
Before refinancing, check whether a payment arrangement on your existing loan solves the problem more cheaply. On our loan the cost of a managed delay is capped, so it often beats a new facility with fresh fees.
If in doubt, talk to us about an arrangement before taking on new debt.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: How do we avoid making difficulty worse with quick-fix borrowing?, Should I borrow more to cover a missed payment?, Using short-term finance responsibly in a squeeze.