How to refinance a business loan (CEBA included)

Many business owners take a “set and forget” approach to business financing. But if your business is growing quickly, has improved its credit or has collateral to put down for the loan, you may be able to refinance your business loan to get lower rates or better terms.

In this guide, we’ll show you how to refinance a business loan, including CEBA loan refinancing to take advantage of the federal government’s forgiveness offering.

How does business loan refinancing work?

Business loan refinancing may seem a little complicated at first, but we’ll help you through the process. You’ll need to apply for a new loan — preferably one with a lower interest rate or longer term — and use those funds to pay off a previous loan. If your business credit score has increased, you have a number of small loans you’d like to consolidate or need to extend your payment period, refinancing is generally the way to go.

Beyond the change of lenders, refinancing can take many forms. For most businesses, the goal is to save money by lowering interest rates, though some prefer to lower monthly payments by choosing a loan with a longer term.

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What is CEBA?

CEBA is the Canada Emergency Business Account, a financial relief measure introduced in April 2020 by the Government of Canada to help businesses navigate the COVID-19 pandemic. Under the program, small businesses and not-for-profits could access interest-free loans. Initially, loans of up to $40,000 were available, but the maximum loan amount was increased to $60,000 in December 2020.

Loans were offered by over 220 financial institutions across Canada, but the application period for CEBA loans closed on June 30, 2021.

Is there CEBA loan forgiveness?

Yes, CEBA loans offer partial loan forgiveness. If you’re an eligible CEBA borrower in good standing, the repayment deadline to qualify for CEBA loan forgiveness is January 18, 2024. If you pay off a specified amount of your CEBA loan by this date, you’ll be eligible for up to $20,000 loan forgiveness.

The amount of your loan that can be forgiven depends on the amount you borrowed:

• Up to $40,000 CEBA loan: To qualify for the 25% forgiveness up to a maximum of $10,000, you’ll need to repay the outstanding loan balance (other than the amount that will be forgiven) on or before January 18, 2024.
• $60,000 CEBA loan: If you took out a $40,000 loan and later received the $20,000 CEBA expansion, you can qualify for a forgiveness amount of up to $20,000 (25% of the first $40,000 and 50% of the next $20,000). You’ll need to repay the outstanding loan balance (other than the amount that will be forgiven) on or before January 18, 2024.

If you don’t pay off the non-forgivable portion of your loan by the CEBA loan repayment deadline, it will be converted to a term loan with full repayment due on December 31, 2026. A 5% annual interest rate will apply.

Please note: If your lender has previously contacted you to let you know that you do not qualify for partial loan forgiveness, you’ll be required to repay your CEBA loan by December 31, 2023. Check with your lender to confirm your CEBA repayment deadline.

Where to refinance your business loan

To take advantage of the partial CEBA loan forgiveness, you might be looking to refinance your CEBA loan. Alternatively, you may have a regular business loan you wish to refinance to get a lower interest rate.

If that’s the case, you can refinance a business loan with the following lenders.

Loans Canada is an online loan referral service where you can compare business loans from over 80 lenders. This allows you to compare loans from multiple lenders by submitting a single application, and loans of up to $500,000 are available.

How to refinance a business loan (including CEBA): Fill out an online application form with details such as the amount you need to refinance, business information such as your revenue details, and your personal information. You’ll then receive quotes from lenders that can meet your borrowing needs, and you can complete an application over the phone with the lender you choose.

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Online business lender Journey Capital lets you apply and get funded for a business loan in as little as 24 hours. Loans of up to $300,000 are available, and Journey Capital also offers a CEBA loan refinancing program to help you take advantage of the partial loan forgiveness offer.

How to refinance a business loan (including CEBA): You can apply online to refinance a business loan with Journey Capital. You’ll need to provide details such as how long you’ve been in business, your annual sales, the type of loan you want, and your business and personal details. You’ll receive a decision within minutes and can then finalize your loan application over the phone.

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Merchant Growth offers alternative financing solutions for small businesses. Loans of up to $800,000 are available, and you can apply online and get funded in as little as 24 hours.

How to refinance a business loan (including CEBA): You’ll need to fill out an online application form with your personal and contact details, business revenue and the time your business has been in operation. Merchant Growth will contact you within 24 hours to let you know if your application has been approved.

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Can you get CEBA loan refinancing from a bank?

Yes, you can get CEBA loan refinancing from a bank. According to a report in The Globe and Mail from September 2023, the Big Six banks are “open” to refinancing CEBA loans for Canadian small businesses.

If you submit a refinancing application to the bank that provided your CEBA loan by January 18, 2024, you’ll still be eligible for the partial loan forgiveness offer. To qualify, you’ll need to pay off your CEBA loan (except for the amount that will be forgiven) by March 28, 2024.

The CEBA Program does not place restrictions on the loan type or terms that qualify as a refinancing application. However, it’s expected that banks and other financial institutions will receive a large volume of CEBA refinancing applications, so it’s recommended that you apply as soon as possible.

When to consider refinancing your business loan

There are many reasons why business loan refinancing just makes sense. Whether you’re trying to organize a number of debts into a single, easier-to-manage consolidated loan or you’re hoping to secure a lower interest rate and better terms, here are some of the reasons why refinancing your loan can be a smart business move:

Your business is in better financial shape

The first time you applied for a business loan you might have been a brand-new business without much revenue or credit history to your name. Now that things have changed and you have a steady stream of monthly income and less debt, refinancing could open the doors to much better terms and interest rates. You can show your lender you aren’t as much of a risk by providing evidence of your sales revenue and a history of on-time debt repayments.

Refinancing can save you money

Refinancing your existing business loan may be a good idea if your new loan can help you save money in the long run. It’ll take some number crunching, but take stock of how much you would save by paying off your existing loans early and taking on a new loan with a lower interest rate and better terms. But remember to calculate how much you may incur in charges for setting up a new loan along with prepayment penalties.

You’re juggling multiple debts

A prime reason why business owners refinance their loans is to combine them together into a single loan with one interest rate and one monthly payment. Refinancing and pulling together multiple debts removes the headache of managing several loans. This is also called debt consolidation.

You can now secure your loan with assets

You might have applied for an unsecured loan when you started your business, but you now have business assets to your name, including property, vehicles or equipment. If you’re willing to, you can apply for a new loan that’s secured against your assets to score a lower interest rate.

You want to change your terms or monthly payments

Usually business owners aim to get out of debt faster, but you may be considering refinancing to switch up your terms with more flexibility in mind. Some business owners turn to refinancing to extend their loan payment terms using a lower cost loan option so they can free up more cash flow each month.

When to avoid business loan refinancing

Refinancing a business loan can also come with drawbacks. Here’s what to keep in mind to help you make your decision:

It might not save you money

If refinancing a business loan is going to cost you more, it’s often not worth the effort. Do the math before proceeding and add up all of the charges involved, including prepayment penalties, origination fees, administrative fees and other charges for making changes to your loan. It could end up putting you further in the red.

Your business or personal credit score is weak

Before you approach your lender to make any changes to your loan, check your credit score. The last thing you want to do is flag to your lender that your credit has taken a hit since the last time you negotiated your loan’s terms. If your credit score is in bad shape, you’ll have trouble finding better loan terms. Applying for a new loan also further damages your credit. Your best bet is to work on boosting your credit score, paying down existing debts and ensuring all payments are on time before approaching your lender for business loan refinancing.

Your new loan terms and interest rates are too hard to manage

Steer clear of a high-interest, short-term loan that’s promising you’ll get out of business debt quickly. Don’t commit to loan terms that are difficult to work into your budget, especially if you may end up with late payments. Your goal is to choose a refinancing plan that saves you time and money in the long run.

What are my options to refinance a business loan?

Your business loan refinancing options come in different shapes and sizes. It’s up to you to decide what works best for your business’s needs. Here’s a look at some of the options:

• Extending the terms of your current loan. Just like homeowners can refinance their mortgage, business owners can decide to refinance their existing loans with a clear idea of what they’d like to change up. Would you like to lengthen the term of your loan for another 5 to 10 years to free up cash flow and make monthly payments lower? Would you like to swap to a variable rate loan or a fixed rate loan?
• Applying for a new loan to pay off existing debts. If you have a higher credit score and assets to your business’s name, you may try to apply for a new loan altogether with the aim of securing a much lower interest rate and better terms. You may decide to use your new loan to pay off existing loans, so you’re left with one consolidated debt to tackle. When you’re leveraging assets, you’ll access a lower interest rate offer from lenders.
• Choosing a different loan product. Another option to consider when refinancing a business loan is to add another loan product, such as a business line of credit (LOC). With a business line of credit, you can borrow funds up to a predefined limit, and only pay interest back on the money you borrow. You may decide it’s wise to open a LOC to pay off the remainder of small debts. The flexibility of a LOC means you can always access cash up to your credit limit over the course of many years.

What questions should I ask before I refinance a business loan?

While refinancing a business loan could potentially benefit your business, you should never take the decision to refinance lightly. Just like any loan, weigh the pros and cons of the new loan package against what you already have. Some may lower your monthly payments but come at the cost of extending your loan term and interest, while others may lower your interest rate but require expensive collateral. Some experts say that refinancing is worth it if you see your APR go down by about 5% or extend your repayment term by 12 months or more.

Try to answer these four questions before you tackle a new loan arrangement.

1. What’s my goal from refinancing?
   Do you want to keep day-to-day costs down by extending your term, or would you rather have this debt paid off so you can take out a new loan? There are lots of reasons a business would want to refinance a loan, so make sure you are clear on what yours are.
2. Does my current loan meet the needs of my business?
   Do your loans give you easy and affordable access to the funds you need? List your existing debts and the total balance to see if you should refinance some or all of your loans.
3. How could refinancing benefit my business?
   Refinancing your loan can get you better interest rates, reduce your repayments or access equity in your business. Find out how refinancing can make your business more financially secure.
4. What is the cost of refinancing?
   Refinancing your loans is meant to save you money, but there are fees involved. You can expect to pay origination fees from 2% to 7% of the loan amount, and possibly see bank, attorney, title and appraiser fees. And if you decide to change lenders, you may pay a prepayment penalty fee.

Is my business eligible for refinancing?

The eligibility criteria for business loans vary from one lender to the next and can depend on the loan type you’re looking for, but generally your business will be required to:

• Have a good credit history.
• Have been in business for at least six months to one year.
• Provide proof of business income, such as bank statements, tax returns and projected cash flow statements.
• Provide a business plan that shows estimated growth.
• Provide copies of your loan statements for the past six months.

Other criteria, such as providing collateral for the loan, may also be required depending on your circumstances. Be sure to thoroughly research a loan’s eligibility criteria and put together a comprehensive application. This helps your chances of approval and could get you a better deal.

6 steps to refinancing a business loan

Refinancing your loan could differ depending on your business’s needs and the loan terms you’re considering, but most refinancing follows these steps:

1. Decide whether you need to refinance. In some cases, you may be financially better off in the long run by sticking with your current loan. Conduct a thorough cost-benefit analysis to decide whether business loan refinancing is the right solution. Have a clear goal in mind before you start looking for a new loan.
2. Compare your options. Shop around and compare loans from a variety of lenders. A broker who specializes in business loans can help you access many lenders where you can refinance a business loan.
3. Choose a lender and loan. Once you’ve narrowed down your options, make your final decision based on the specific features of the loans you’re considering.
4. Apply for the loan. Prepare all the necessary paperwork requested by the lender and apply for the loan. Detailed documentation is usually required before you can refinance, and you’ll usually need to supply financial statements from at least the past six months, profit and loss statements, projected financials and business tax returns.
5. Get approval. Once you have all your documents in order, your application will be assessed by the financial institution. If you have collateral for your loan, the lender will likely want to have it evaluated.
6. Settlement. The final step is to sign the new loan contract and pay off your previous loans. You can expect to start making your new loan repayments after a month.

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What are the benefits to refinancing a business loan?

Refinancing a business loan can be helpful to your business. If you find the right lender you could see benefits like:

• A lower rate. Refinancing can help you find a better APR, lowering your monthly payments and total cost of your loan. This could open your cash flow to invest back into your business for things like new equipment.
• Switching to a fixed rate. A loan with a variable interest rate can make budgeting for payments difficult. With a fixed-rate loan, your interest rates are locked in and won’t increase for the life of your loan. This helps create a predictable budget.
• Increased cash flow. By refinancing to a better deal, you can lower your loan repayments and increase the amount of cash available to help you manage your business day to day.
• Make it easier to manage debts. By consolidating multiple debts into one loan, you only have to worry about paying down a single loan rather than making repayments towards several different loans.
• Access the equity in your business. Refinancing can allow you to access the equity you have built up in your business to fund future spending or upgrades.
• Release previous collateral. If you offered a personal asset like your home or property as security for a loan, you may be able to refinance and release that collateral. When you refinance, your business may be able to offer its own collateral to replace your personal assets.

What are the drawbacks to refinancing a business loan?

Refinancing a business loan may not always be the best idea. There are circumstances that make it better to stick with the loan you already have. Your choice to refinance or keep your current loan depends on the financial circumstances of your business and the risks and benefits of adjusting your loan arrangements. You may opt not to refinance if:

• Your business credit is low. If your business still has a low credit score, you can’t access the best rates and features of a loan. In this situation, refinancing may not be the best option.
• It will cost too much. Add up the total cost of refinancing, including the fees that come with paying off your current loan. If the cost of refinancing outweighs the potential benefits, refinancing is likely not the right choice for your business.
• You haven’t been officially approved. Don’t commit to changing loans or lenders until you’ve been approved. Evaluating the terms of a new loan takes time, so wait for official approval.
• You risk losing the relationship with your current bank. If your business is a long-term customer of a particular bank, it may have an in-depth understanding of your business’s history and financing needs. Switching to a new lender could damage this relationship.

How much does it cost to refinance a business loan?

Refinancing is meant to save you money, but you can expect to pay some fees. Fees vary, but lenders should outline the cost of these fees upfront before you apply. It’s important to evaluate the potential cost compared to the savings you’re looking for.

Fees you might encounter include:

• Origination fees. Most lenders charge origination fees of between 2% and 7% of the total loan.
• Prepayment fees. Check the terms of your lenders. Some banks charge a fee for early repayment — if you break from their loan, they lose money from your interest.
• Legal fees. Depending on the size of your business, you may need an attorney or financial advisor to help you determine the best deal for your business.
• Appraisal fees. Offering collateral can lower the total cost of your loan, but you can pay a lot of money in appraisal fees.
• Closing costs. These costs cover loan packaging or a business valuation.

Bottom line

Refinancing a business loan can help your business succeed and grow, but you’ll need to weigh all your financing options as you make your decision. Not every loan needs to be refinanced, and you should be prepared to pay off the high fees of any previous loans before taking out a new one. And if you want to refinance a CEBA loan, be sure to apply well in advance of the January 18, 2024 deadline.

Frequently asked questions

• How much should I refinance?

  The total amount you need to refinance depends on your business needs and previous loans. A quick way to estimate the amount you should borrow is to add together the current balance owed, any additional capital your business needs and fees. When taking out any loan product for your business, you should consult a certified accountant to be sure you’re making the right choice.

• Will I save money refinancing a business loan?

  This is the big question that has no clear-cut answer, but the goal is to save money. Some businesses save money by refinancing at a lower rate, while others spend more in interest over the long term. This is why it’s important to understand the full cost of refinancing a business loan before you borrow. Add together all the fees, interest and principal and compare it to your current loans.

• Should I go for Canada Small Business Financing Program (CSBFP) loan?

  While these can be difficult to qualify for, a CSBFP loan comes with much lower rates than most commercial loans out there. If you think your business is eligible, you may want to consider refinancing with a CSBFP loan so you can access lower interest rates.

• Can I refinance a merchant cash advance?

  You could, but you may want to check if you’ll actually save money by refinancing this type of loan. Refinancing a merchant cash advance could be useful if you want lower repayments.

• Can I refinance a business loan?

  Yes, you can. You’ll need to apply for a new loan — preferably one with a lower interest rate or better term — and use those funds to pay off a previous loan. Generally, refinancing can be the right option if your business credit score has increased, you have a number of small loans you’d like to consolidate, or you need to extend your payment period.

• Does refinancing a business loan hurt your credit?

  It might. When you apply for a new business loan, lenders will make a hard credit inquiry before approving your refinancing. This hard credit check negatively affects your credit score, but only in the short-term. If you already have a low credit score or you need to keep your credit in good shape because you know you’ll be applying for loans, grants or other investments in the near future, refinancing at this time may not be a good option.

• Can I refinance my CEBA loan and qualify for partial loan forgiveness?

  Yes. If you’re an eligible CEBA loan holder in good standing, you may be able to qualify for partial loan forgiveness. You’ll need to apply for refinancing from the same financial institution that provided your original CEBA loan by January 18, 2024, and repay the principal of your CEBA loan (aside from the amount to be forgiven) by March 28, 2024. You can also apply for refinancing from other lenders, but you must apply for refinancing from the same financial institution that provided your original loan.

• Is CEBA loan forgiveness taxable?

  Yes, you’ll need to pay tax on the forgiveness portion of your CEBA loan. Speak to your accountant about how to report this information on your tax return.

Written by

Tim Falk

Writer

Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

Co-written by

Carmen Chai

Writer

Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade. See full bio