Smart ways to refinance existing business debt

Refinancing business debt is one of the most underused strategies for improving profitability without needing to land new clients or increase prices.

If you're carrying multiple business debts or locked into a high-rate facility that made sense when you first borrowed, the right refinancing structure can cut your monthly outgoings, consolidate repayments, and free up working capital. The approach depends on how your business generates income, what assets you hold, and what you're trying to achieve over the next 12 to 24 months.

Why business owners in Greater Perth refinance debt

You refinance when the cost or structure of your existing debt no longer matches the performance or direction of your business.

This happens when interest rates have shifted since you first borrowed, when you've accumulated multiple facilities that are now easier to manage under one lender, or when your business credit score has improved enough to qualify for more favourable terms. It also happens when cash flow has tightened and you need to reduce monthly commitments, or when you want to access equity in business assets to fund expansion without taking on unsecured debt.

Consider a freight operator based in Welshpool carrying a $180,000 unsecured business loan at 11.5% taken out during the height of COVID disruption. The business now owns two trucks outright and generates consistent revenue under long-term contracts. Refinancing to a secured business loan against the vehicles at 7.8% reduced monthly repayments by just over $900 and freed up working capital to bring on another driver without needing a separate working capital facility.

Secured vs unsecured refinancing structures

A secured business loan uses an asset as collateral, typically equipment, vehicles, or commercial property.

Because the lender holds security, the interest rate is lower and the loan amount can be higher. If you own assets that can support a security position, refinancing from unsecured to secured debt usually delivers the most immediate cost reduction. The trade-off is that the lender can enforce against that asset if repayments aren't maintained, so the structure works when cash flow is stable or improving.

An unsecured business loan doesn't require collateral, which makes it faster to arrange and more appropriate for service-based businesses without substantial physical assets. Rates are higher to reflect the lender's increased risk, but the facility can still deliver value when used to consolidate multiple higher-rate debts like credit cards, merchant cash advances, or invoice financing arrangements that are costing more than a structured term loan. If you're refinancing into unsecured finance, the focus should be on simplifying repayments and reducing the blended rate across all current commitments rather than chasing the lowest headline rate on a single product.

Fixed vs variable interest rates when refinancing

A variable interest rate moves with the market and gives you access to redraw or additional repayments without penalty.

This suits businesses with uneven income or seasonal variation, where the ability to pay down debt during strong months and redraw during quieter periods supports cash flow management. Most variable business loans also allow you to increase repayments or pay out the facility early without break costs, which is useful if you're refinancing short-term debt and expect to clear it within two to three years.

A fixed interest rate locks in your repayment for a set term, usually one to five years, and protects you from rate increases during that period. The structure works when you need certainty around monthly expenses or when you're refinancing a large debt and want to model cash flow without worrying about rate movements. Fixed loans typically don't offer redraw and may carry break costs if you repay early, so they're less suited to businesses planning rapid growth or a sale in the near term.

How loan structure affects cash flow

The way a loan is structured can matter more than the rate, particularly when refinancing to address cash flow pressure.

If the goal is to reduce monthly outgoings, extending the loan term spreads repayments over a longer period and lowers each instalment. A $250,000 business term loan at 8.2% repaid over five years costs roughly $5,100 per month. The same loan over seven years costs around $3,850. That $1,250 difference each month can be the margin between managing payroll comfortably and juggling payment dates. The trade-off is you'll pay more interest over the life of the loan, but for many businesses the immediate cash flow relief is worth it.

Alternatively, refinancing into a facility with flexible repayment options, like a business line of credit or revolving facility, gives you access to funds as needed rather than drawing a lump sum and paying interest on the full amount from day one. This works when you're consolidating short-term debt but don't need all the funds upfront, or when you want the option to draw for working capital, repay from revenue, and redraw again without reapplying.

Consolidating multiple business debts

Many Perth businesses accumulate debt across several products without realising how much the combined interest and fees are costing them.

You might have a business overdraft, a merchant cash advance, an equipment lease, and a credit card all running at different rates with different repayment dates. Each one made sense at the time, but together they're expensive and difficult to manage. Refinancing into a single business term loan or secured facility lets you clear all the existing debts, lock in one repayment, and often reduce the blended rate.

In a scenario like this, a landscaping business operating across the northern suburbs was managing four separate facilities totalling $210,000 with repayments spread across three different dates each month. The blended rate worked out to around 10.3% when fees were included. Refinancing into one business loan at 8.5% with fortnightly repayments aligned to their invoice cycle cut monthly costs by $780 and removed the administrative load of managing multiple lenders.

When to refinance into commercial lending structures

If your business owns or is purchasing commercial property, refinancing existing debt into a commercial loan backed by that property can unlock better rates and higher borrowing capacity.

Commercial lending is structured differently to standard business finance. The lender assesses the income-producing capacity of the property as well as your business financial statements, and the loan-to-value ratio is typically lower than residential lending. But if you're carrying unsecured business finance or high-rate working capital facilities and you own a warehouse, shopfront, or office in an area like Osborne Park or Malaga, moving that debt onto a commercial property loan can reduce your rate by several percentage points and extend the term to 15 or 20 years.

This approach also works if you're refinancing to fund business expansion or equipment purchases. Rather than taking on separate equipment financing or a second unsecured facility, you can increase the commercial loan and use the property equity to fund the growth. The structure keeps your debt consolidated and your rate lower than splitting across multiple products.

What lenders assess when refinancing business debt

Lenders want to see that your business can service the new loan comfortably and that refinancing improves your financial position rather than just delaying a problem.

They'll review your business financial statements, usually the last two years of profit and loss and balance sheet, along with recent bank statements showing trading activity and cash flow patterns. If you're refinancing into a secured loan, they'll also assess the value and condition of the asset being used as collateral. Your business credit score affects the rate and loan amount you can access, but it's not the only factor. A strong cashflow forecast showing consistent income and a clear reason for refinancing, like consolidating high-rate debt or funding expansion, will carry more weight than a perfect credit file with unstable revenue.

The debt service coverage ratio is a key metric. It measures how much operating income you generate compared to your total debt repayments. Most lenders want to see a ratio of at least 1.2, meaning your business earns $1.20 for every $1.00 of debt servicing. If your current debt structure has pushed that ratio below 1.2, refinancing to reduce repayments can bring you back into a serviceable position and improve your ability to access finance in the future.

How long the refinancing process takes

The timeline depends on whether you're refinancing into a secured or unsecured facility and how quickly you can provide the required documentation.

For an unsecured business loan where the lender doesn't need to value assets or register security, you can often get approval within 48 hours and funding within a week. This suits businesses refinancing smaller debts or consolidating working capital facilities without property or equipment involved. If you're refinancing into a secured business loan against vehicles or equipment, add another week for valuation and documentation. For commercial property refinancing, expect four to six weeks from application to settlement, as the process involves property valuation, contracts, and title registration.

Having your business plan, recent financial statements, and a cashflow forecast ready before you apply speeds things up. So does knowing exactly what you want to achieve. If you're refinancing to reduce repayments, say that. If you're consolidating debt and accessing additional working capital, be clear about how much and what it's for. Lenders can move quickly when the application is specific and the numbers support it.

Call one of our team or book an appointment at a time that works for you. We'll compare your current debt structure against what's available across lenders, model different scenarios, and show you what refinancing could actually save or release in your situation.

Frequently Asked Questions