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Options for Refinancing Variable Rate Business Debt

Options for Refinancing Variable Rate Business Debt

If you own a small business and have variable rate debt, like a business line of credit or credit card, you may be looking for ways to refinance that debt to lock in a lower fixed interest rate. With variable rates on the rise, refinancing can help provide payment stability and potentially even lower your monthly payments. Here are some of the main options businesses have for refinancing variable rate debt.

Fixed Rate SBA Loans

One of the most popular options for refinancing variable rate small business debt is to take out a low fixed rate Small Business Administration (SBA) loan. As described on r/smallbusiness, SBA loans offer borrowers low long-term fixed rates, extended repayment terms, and low down payments.

The two main types of SBA loans are:

  • 7(a) Loans: The SBA’s primary and most flexible loan program, with loan amounts up to $5 million and interest rates from 6-8%.
  • 504 Loans: Provide up to $5 million for major fixed assets like real estate or equipment, with low 10-20% down payment requirements.

According to this Quora thread, the long repayment terms of up to 25 years and ability to consolidate multiple business debts into one loan make SBA loans one of the best options for refinancing variable rate debt.


Another route some small business owners take is getting a Home Equity Line of Credit (HELOC) and using the funds to pay off higher-interest business debt.

As explained on r/smallbusiness, benefits of HELOCs include:

  • Often have lower variable rates than business credit cards or lines of credit
  • Interest may be tax deductible
  • Can access funds as needed instead of one lump sum

However, there are downsides to be aware of, like putting your home at risk if the business struggles. This article from Avvo provides a good overview of the pros and cons.

401(k) Business Financing

Some business owners choose to leverage funds from their 401(k) or other retirement accounts to refinance debt. Products like 401(k) business financing loans allow accessing up to 50% of your vested 401(k) balance to reinvest in your business at competitive rates.

Pros and Cons

Refinancing Option Pros Cons
SBA Loans Low fixed interest rates, long repayment terms, can consolidate multiple debts Lengthy application process, max loan amounts limited for larger businesses
HELOCs Often have lower variable rates than business debt, interest may be tax deductible Put your home at risk if business struggles
401(k) Business Financing Competitive interest rates, access up to 50% of vested 401(k) balance Complex application, fees involved with setting up, risks losing retirement savings

Factors to Consider

When evaluating the best approach for your variable rate business debt, here are some key factors to consider:

  • Interest rates – Compare rates on SBA loans, HELOCs in your area, 401(k) business financing options, and more. The lowest rate can save substantially over the long run.
  • Qualification – Each financing product has its own eligibility, credit score, time in business, and collateral requirements. Make sure you qualify before applying.
  • Costs – Look beyond the interest rate at origination/closing costs, prepayment penalties, servicing fees, and other expenses.
  • Risks – Understand risks like putting your home at risk with a HELOC or losing retirement savings through 401(k) financing if the business falters.

Refinancing Process

The basic steps to refinance variable rate business debt include:

  1. Check credit reports – Order reports from Equifax, TransUnion, Experian to understand your business credit scores. Scores above 680 have the best loan rates/approvals.
  2. Get documentation ready – Lenders require tax returns, financial statements, business plans, collateral details, and other documents when applying.
  3. Research lenders – Search online, ask other business owners for referrals, consider community banks/credit unions which may offer personalized service.
  4. Compare loan offers – Apply with several lenders to compare rates and terms. Consider all costs – not just interest rates.
  5. Close on new loan – After selecting the best loan option, you’ll go through final underwriting and verification before closing.
  6. Pay off old debts – New loan proceeds get used to pay off credit cards, lines of credit, or other variable debts.

Refinancing variable rate loans or debts into fixed rate SBA loans, HELOCs, 401(k) business financing, or other products can provide stability and potentially lower costs. Compare all options thoroughly before committing to ensure the product aligns with your risk tolerance and budget. Local SBA-approved lenders and legal/financial advisors can also help advise on the best strategies for your unique situation.


Refinancing variable rate debt into fixed rate products can provide stability for small business owners when rates are rising or fluctuating. Be sure to understand all options as well as risks and costs prior to committing to a new loan or line of credit. Consultation with a lawyer or financial advisor can also help navigate the best strategy for your unique situation.

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