Should You Refinance a Loan?

Refinancing replaces an existing obligation with a new one—ideally at better pricing, terms, or structure. For Canadian SMEs, it can free cash flow, fund growth, or consolidate expensive debt. But it isn’t automatically a win. Below is a credit-analyst guide to decide—using simple math, a risk checklist, and the main structures available through Mehmi.

Levers you can pull: lower rate, longer term, different security (loan vs lease), or cash-out using owned equipment. Explore options across Business Refinancing, Equipment Loans, Equipment Leases, Conditional Sales Contracts, and Refinancing & Sale-Leaseback.

When refinancing is a good idea

• You can lower total cost after fees and any payout penalties.
  
  
• Cash flow is tight and a sensible term extension reduces payment risk.
  
  
• You need to change structure (e.g., refinance a lease residual into a loan/CSC you’ll keep).
  
  
• You’re consolidating high-rate short-term debt into collateralized financing. Compare with Asset-Based Lending, a Working Capital Loan, or a Business Line of Credit if operating needs persist.
  
  

When it’s not a good idea

• Break costs wipe out savings, or the refinance pushes term past the asset’s useful life.
  
  
• The equipment is underwater or has weak resale; approvals/pricing may disappoint.
  
  
• You’ll need borrowing capacity shortly; stacking new liens can reduce flexibility.
  
  
• Switching just for a lower monthly but higher lifetime cost (no clear payback).
  
  

Quick decision checklist (print-friendly)

How to calculate “Is it worth it?” (2-minute math)

1. Get the true payoff on your current contract (including prepayment fees).
   
   
2. Price the new structure (rate, term, fees, and any buyout if you’re refinancing a lease).
   
   
3. Compare lifetime cost:
   
   
   
   • Old: remaining payments + payoff.
     
     
   • New: all payments + fees − any cash you receive (for cash-out deals).
     
     
4. If the new total is lower or materially improves cash flow without overextending term, refinancing is likely sensible.
   
   

Model scenarios quickly with the calculator.

Common refinance paths (and when to use each)

• Rate-and-term refinance (loan/CSC): For keeper assets where you want title and predictable amortization. See Equipment Loans and CSC.
  
  
• Lease buyout financing: Spread a looming FMV or fixed residual over time. Pair with a loan if you’ll keep the unit. See Equipment Leases.
  
  
• Sale-leaseback: Unlock equity from owned equipment while keeping it in service. See Refinancing & Sale-Leaseback.
  
  
• Debt consolidation with collateral: If MCAs or short notes are crowding cash, consider Asset-Based Lending plus a Working Capital Loan or Term Loan.
  
  

Short case study (realistic scenario)

A contractor with a high-payment lease on a late-model excavator faced a 10% residual in four months. We compared: keep-and-pay cash, lease renewal, or buyout refinance into a 60-month loan/CSC. The refinance cut the monthly by 14%, converted the balloon into amortized payments, and matched term to the machine’s remaining useful life. Total lifetime cost fell after accounting for the lease payout fee.

FAQs

Is refinancing always cheaper?
No. Penalties and long extensions can erase savings. Run the calculator and compare totals.

Will refinancing hurt approvals later?
If it cleans up liens and stabilizes cash flow, it can improve future approvals—especially for additional units.

How fast can it be done?
With a complete file and liquid collateral, clear answers are common within 24–48 hours.

What credit profile helps?
Broad options open at ~650+, but strong collateral, clean bank statements, and right-sized LTV matter more than a single number.

Can I refinance multiple assets at once?
Yes—via a pooled Asset-Based Lending facility or coordinated loans/leases.

What if I just need operating cash, not a new term?
Consider a Business Line of Credit or Invoice/Freight Factoring instead of stretching equipment terms.

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Want a side-by-side showing keep vs refinance vs buyout with payments and total cost? Use our calculator, then feel free to contact our credit analysts to tailor terms to your cash-flow and ownership plan via Contact Us.