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REFINANCING DEBT AND CASH FLOW NEEDS IN CANADA
UPDATED 09/20/2025
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BUSINESS LOANS IN CANADA - HOW TO REFINANCE A BUSINESS
BUSINESS LOANS IN CANADA – HOW TO REFINANCE A BUSINESS
Introduction
Business refinancing is the process of replacing or restructuring debt to improve a company’s financial position. The strategy can lower financing costs, improve cash flow, or strengthen credit quality. Companies may use traditional or alternative lenders depending on their needs.
Loan Usage and Refinancing Trends
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The average SME loan size in Canada is $250,000–$500,000 depending on industry and company size. (Source: BDC/Statistics Canada)
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About 30% of SMEs refinance debt within the first five years of operation to manage growth or improve cash flow. (Source: Industry surveys, Canadian Federation of Independent Business)
Advantages of Debt Refinance
Refinancing business loans can reduce interest rates and monthly payments. Lower payments free up cash flow for daily operations and growth.
Longer amortizations improve flexibility and make debt levels appear more manageable. Consolidating debt simplifies repayment and can enhance a company’s credit score.
Access to traditional and alternative funding becomes easier, freeing capital for investments in growth initiatives.
Alternative Financing Growth
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Use of alternative financing (factoring, asset-based lending, merchant cash advances) has grown by 20% year-over-year among Canadian SMEs. (Source: Globe and Mail, SME finance reports)
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Nearly 1 in 4 SMEs reported using non-bank lenders for working capital needs. (Source: CFIB)
Why Companies Consider Debt Restructuring
Businesses refinance to improve their financial position and capital structure. Refinancing may involve replacing debt or restructuring obligations.
When interest rates are stable, refinancing can lock in predictable monthly costs and reduce overall expenses. This is especially valuable in times of economic change.
The process ensures a more efficient use of capital and can strengthen long-term financial health.
Interest Rates & Cost of Capital
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As of 2024, Canadian prime lending rate averaged 6.95%, compared to 2.45% in early 2020. (Source: Bank of Canada)
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Businesses refinancing during lower-rate environments can save 15–30% on annual interest expenses depending on loan type and amortization. (Source: BDC, SME loan data)
Reasons to Refinance Business Debt
Leveraging assets through a sale-leaseback of equipment or company-owned commercial real estate provides liquidity. Proceeds at new competitive interest rates can reduce debt or fund projects in marketing and research.
Tax credits such as SR&ED can also be financed to create short-term working capital. Typical SR&ED loans run 6–12 months.
SR&ED and Tax Credit Financing
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The SR&ED program provides over $3 billion annually in tax credits to Canadian businesses. (Source: Government of Canada)
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SR&ED loans typically advance 60–80% of expected refund value, with terms of 6–12 months. (Source: Canadian financing providers)
Commercial mortgage refinancing is another common strategy. Credit history and owner guarantees often influence available terms.
Refinance or Bust – Why It Matters Today
Businesses in distress may need refinancing to restructure debt and stabilize operations. Events like the pandemic have highlighted the need for flexibility.
Short-term loans, including merchant cash advances, provide quick access to capital. These loans are costly but can bridge urgent cash flow gaps.
Successful refinancing delivers stronger cash flow and more working capital for both survival and growth.
Alternative Financing Growth
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Use of alternative financing (factoring, asset-based lending, merchant cash advances) has grown by 20% year-over-year among Canadian SMEs. (Source: Globe and Mail, SME finance reports)
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Nearly 1 in 4 SMEs reported using non-bank lenders for working capital needs. (Source: CFIB)
Timing Is Everything
Restructuring often takes months and requires management involvement. Preparing business plans, forecasts, and negotiating with lenders is part of the process.
The main costs of refinancing include time, effort, and professional fees. However, companies experiencing growth may benefit by avoiding long-term debt through purchase order or receivable financing.
Equity infusions, large contracts, or seasonal demands can also trigger refinancing needs. Companies must carefully analyze timing to maximize benefits.
Preparing the Turnaround Plan
When sales decline and cash flow is negative, a turnaround plan becomes essential. Lenders expect strong documentation, including financials, forecasts, and collateral details.
A complete refinancing package should include management’s analysis, financial statements, and aged receivables and payables. This preparation signals credibility and increases approval chances.
Working with experienced advisors is often critical, especially if the company is placed in a bank’s special loans division.
Is Refinancing the Right Solution for Small Businesses?
Sometimes amending existing debt is simpler than refinancing. Non-bank options like receivable financing, factoring, and asset-based lending provide faster cash flow solutions.
Confidential receivable financing, where businesses control their collections, is a flexible method to unlock same-day cash.
Each company’s needs differ. The right choice depends on growth opportunities, debt levels, and industry conditions.
Case Study: Manufacturing Company Success
Company: (Fabricated metal products, $8M annual revenue)
Challenge: The company faced a 7.5% commercial mortgage rate on their 50,000 sq ft facility with only 3 years remaining on term. Rising material costs squeezed margins while high property payments limited equipment upgrade budgets. Management needed immediate cash flow relief and capital for new CNC machinery.
Solution: 7 Park Avenue Financial originated a specialized commercial refinancing that offered a cash-out refinancing package. The new 5.2% rate over 20 years reduced monthly payments from $18,400 to $12,800. The cash-out component provided $750,000 for equipment purchases.
Results: Monthly savings of $5,600 improved cash flow by $67,200 annually. The equipment financing through refinancing saved 2.3% versus equipment loans. Production capacity increased 35% within six months, generating an additional $2.1M in annual revenue. The refinancing investment paid for itself in under 14 months.
Key Takeaways
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Business refinancing replaces or restructures debt to improve financial performance.
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Advantages include lower interest costs, improved cash flow, and simplified debt repayment.
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Refinancing strategies include sale-leasebacks, SR&ED financing, and commercial mortgage refinancing.
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Timing is critical—refinancing often requires months of planning and documentation.
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Non-bank options like receivable financing provide quick, flexible cash flow solutions.
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Costs include professional fees, appraisals, and potential prepayment penalties.
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Working with experienced advisors increases success in complex refinancing.
Conclusion
Business refinancing can improve financial strength, reduce costs, and unlock growth capital. Business owners should weigh costs against benefits and align strategies with long-term goals.
Loan covenants and guarantees must be reviewed before restructuring. In many cases, refinancing provides an opportunity to reposition a company for stability or expansion.
At 7 Park Avenue Financial, we help Canadian businesses evaluate refinancing options. Our team has a proven track record in debt restructuring and business financing solutions.
FAQs
What is business refinancing?
Business refinancing replaces or restructures existing debt to improve financial performance and credit quality.
What factors affect refinancing?
Interest rates, cash flow, financial health, and equity levels determine refinancing options.
When is the right time to refinance?
Businesses refinance when interest rates are favorable, debt becomes unmanageable, or new financing needs arise.
What are common refinancing strategies?
Strategies include new equity, renegotiating debt, asset-based loans, and restructuring repayment schedules.
What are the benefits of refinancing?
Refinancing lowers costs, improves cash flow, and strengthens creditworthiness, opening access to better financing through fixed rates or variable rate.
What are the costs?
Costs may include appraisals, legal fees, advisor costs, and prepayment penalties. Business owners must ensure savings outweigh expenses when assessing loan terms
Statistics on Commercial Refinance Lenders
- 67% of commercial property owners could reduce payments and access funds by refinancing with specialized commercial refinance lenders
- Average savings from commercial refinancing: $84,000 annually for properties valued at $2M+
- 89% of businesses that refinanced through specialized commercial refinance lenders reinvested savings into growth initiatives
- Commercial refinance lenders typically process applications 35% faster than traditional banks or credit unions
- 73% of commercial refinance transactions include cash-out components for business expansion
