From Non-Bank Back to the Bank: Refinancing Short-Term Debt Into Cheaper, Longer-Term Facilities

Non-bank and short-term finance is designed to be temporary. It gets a business through a tax bill, a growth spurt or a bad year. The problem comes when temporary becomes permanent: one short-term loan is rolled into another, and the business ends up paying non-bank rates on debt that a bank would happily fund.

Moving back to the bank is one of the most valuable things a business in that position can do. On $500,000 of debt, the difference between a short-term loan and a bank facility can easily be more than $100,000 a year. This article explains how to get there.

Start With the Exit, Before You Borrow

The best time to plan a refinance to the bank is before you take the non-bank loan. Ask yourself two questions:

• What does a bank need to see that it can't see today? Another year of financials, a cleared ATO debt, a completed project, a lower loan-to-value ratio.
• How long will that take? The non-bank loan should run at least that long, with early repayment terms that don't penalise you for leaving on time.

A short-term loan with no clear exit is a cost with no end date.

What Banks Need to See

• Profitable financials. Usually two years of accountant-prepared financial statements, with year-to-date management accounts. One strong year after a weak one can be enough if the reason for the weak year is clear and fixed.
• Serviceability. Earnings that cover the proposed bank repayments comfortably. Banks commonly look for a debt service cover ratio well above 1, often around 1.25 to 1.5 times or more depending on the lender and the loan.
• A clean ATO position. All lodgements up to date, and any debt either paid or on a plan the bank is comfortable with. Many banks will refinance a manageable ATO debt as part of the deal.
• Security. Property security for larger amounts, or strong business assets and cash flow.
• Good conduct. Clean bank statements, with no dishonours and no recent new short-term borrowing.

The biggest obstacle is often not the business, but the story. A bank credit team sees non-bank debt and assumes a problem. Your application needs to explain clearly why the business used it, what has changed, and why bank debt is now the right fit.

Consolidating Stacked Loans

Where a business has two or three short-term loans running at once, each with its own daily or weekly repayments, the combined cash drain can be crippling, even if the business itself is profitable. Consolidating them into a single, longer-term facility can transform cash flow.

An illustrative example:

Refinanced into a single $400,000 five-year bank term loan at an illustrative 9% a year, repayments would be around $8,300 a month, or about $1,900 a week. The business frees up roughly $12,900 a week in cash flow, and pays far less interest over the life of the debt.

The Costs of Switching

• Early repayment costs on the short-term loans. Some factor-rate loans require the full cost to be paid even if you repay early. Get a written payout figure from each lender. Sometimes it's cheaper to let a loan run off while the bank refinances the rest.
• Bank establishment and valuation fees. Usually modest relative to the savings.
• Legal costs. For documentation and releasing old security.
• Releasing security. GSAs, PPSR registrations, caveats and second mortgages held by the old lenders must be released at settlement. Request discharge forms early, because delays here are a common cause of late settlements.

A Realistic Timeline

• Weeks 1 to 2. Gather financials, ATO statements, payout figures and a clear explanation of the business's history.
• Weeks 2 to 5. Approach banks, receive indicative terms, choose a lender and submit for credit approval.
• Weeks 5 to 8. Valuations, formal approval, documentation and settlement, with the old lenders paid out and security released.

Larger or more complex facilities can take longer. Start the process at least two to three months before you need the refinance, for example before a non-bank loan's term ends or an interest rate step-up applies.

If the Bank Says Not Yet

Sometimes the answer is "not yet". In that case, a step in between can still save a lot of money: a lower-cost non-bank lender, a longer-term non-bank facility with monthly repayments instead of daily, or refinancing part of the debt to a bank and leaving a smaller amount with the non-bank. Ask the bank exactly what would change its answer, and set a date to try again.

How We Help

We plan the exit from day one, so non-bank debt has a clear end date. When it's time to refinance, we prepare your application to explain your history properly, tender it across the banks on our panel, manage the payouts and security releases, and keep the settlement on track. Learn more about our commercial refinance service, why detailed financial analysis matters in a tender, and the true cost of short-term business loans.

Book a free, no-obligation consultation and we'll show you what it would take to move your debt back to a bank.