Refinance
Replacing an existing loan or facility with a new one, typically to obtain better terms, release equity, or extend the loan term.
Refinancing is the process of taking out a new loan to repay an existing one. Businesses refinance for several reasons: to obtain a lower interest rate if market conditions have improved or their credit profile has strengthened; to extend the remaining term to reduce monthly payments; to release equity (increase the loan amount to extract cash); or to consolidate multiple loans into a single facility.
For property-backed facilities, refinancing can release equity that has built up through capital repayment or property value appreciation. A commercial property purchased for £500,000 with a £300,000 mortgage that is now worth £700,000 has significant releasable equity - a new lender might advance £490,000 (70% LTV), repaying the existing mortgage and releasing £190,000 in cash.
Early repayment charges on the existing loan must be factored into any refinance analysis. A lower interest rate on a new loan may not justify refinancing if the ERC on the existing loan exceeds the interest saving over the remaining term. A Spark Finance adviser can model the total cost comparison across refinance scenarios.
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