Glossary · product

Refinance

Also called refi, buyout, takeout.

Replacing an existing obligation with a new one that pays it off - changing rate, term, structure or lender - as distinct from a renewal, which the same funder writes on top of a partly repaid balance.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Mechanically: a payoff figure is obtained, the new funder advances enough to retire it, the old lien is terminated and a new one filed. The business now has one obligation instead of the old one.

On amortising debt this can be straightforwardly good. A lower rate, a longer amortization, release of collateral, or replacing several small obligations with one at a better price all reduce total cost or improve cash flow with no offsetting charge beyond fees and any prepayment penalty. The comparison is arithmetic and it is honest.

On factor-rate advances the arithmetic runs the other way, and this is where most refinance conversations in this industry actually happen. Because the purchased amount does not discount for early payoff, the new funder must advance the full remaining figure - a figure that already contains the whole of the old advance's cost - and then charges its own factor rate on that amount. The business pays a second cost to retire a first cost it had already fully incurred. This is double-dipping, and it is a feature of the structure rather than a trick played by any particular funder.

The payment usually falls. The total owed usually rises. Both things are true at once and only one of them appears in the sales conversation.

Where this one catches people

Refinancing an advance to lower the payment almost always increases the total owed, and the increase is not small. Ask for two figures in writing: total dollars owed today across all positions, and total dollars owed after the refinance. If the second is larger, you are buying time and you should know the price of it rather than being told you are saving money.

Worked through

Illustration. Remaining purchased amount $38,000, undiscounted, on an advance with about four months left at $475 a day.

Refinanced at a 1.35 factor: the new funder advances $38,000 to retire it and creates a $51,300 obligation over nine months, roughly $270 a day. Daily outflow falls by about $205. Total owed rises from $38,000 to $51,300 - $13,300 for nine months of easier cash flow, with no new working capital at all.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Merchant Cash Advance Working Capital Term Loan SBA Loan Equipment Financing

Read next

ConsolidationReplacing several outstanding advances or loans with one facility, which genuinely helps only if the old bala… Double dippingRefinancing an advance before it is paid off, so the old balance is rolled into a new and larger advance and … Payoff letterThe funder's binding written statement of the exact amount required to retire an obligation, the date through… Payoff quoteAn indicative figure for what it would take to retire an existing position, given to a merchant or a competin… Prepayment penaltyA charge for repaying early - a flat fee, a stepped percentage, a lockout or a yield-maintenance calculation … Purchased amount (RTR)The total dollars of future receipts the funder has bought and is entitled to collect - a fixed figure set at… RenewalNew funding from the same funder while an existing advance is still outstanding, where the remaining balance … Reverse consolidationA structure in which a new funder deposits money into the merchant's account each week to cover the debits on…

Refinance — common questions

What does refinance mean?

Replacing an existing obligation with a new one that pays it off - changing rate, term, structure or lender - as distinct from a renewal, which the same funder writes on top of a partly repaid balance.

Where does refinance catch people out?

Refinancing an advance to lower the payment almost always increases the total owed, and the increase is not small. Ask for two figures in writing: total dollars owed today across all positions, and total dollars owed after the refinance. If the second is larger, you are buying time and you should know the price of it rather than being told you are saving money.

Is refinance the same as an interest rate?

Refinance is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does refinance apply to?

Merchant Cash Advance, Working Capital, Term Loan, SBA Loan, Equipment Financing.

Is there a worked example of refinance?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside refinance?

Consolidation, Double dipping, Payoff letter, Payoff quote, Prepayment penalty.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.