How to Refinance Short-Term Debt

Short-Term Debt, in the context of financing for SaaS companies, generally refers to lenders who lend money over a number of weeks/month rather than years and either:

1. Provide financing on a factoring/merchant cash advance basis,

2. Assess a higher interest rate for a shorter amount of time, or

3. Assess a fee based structure, wherein principal is repaid with a flat fee over, generally, 12 months

Many borrowers quickly discover that the allure of “1% fee financing” or the ease of factoring provide cash-flow prohibitive and/or costlier debt. Refinancing these more novel, emergent instruments is generally as easy as communicating with the short term lender, determining how to payoff the amount of the note due, and determining what early repayment penalties exist.

The borrower must make an informed decision if the early repayment penalty of their existing short term debt is worth the desired monthly cash savings/lower cost under a more traditional facility.

Element Finance loans are a great long term option for from a cost and cash perspective, given their 48-60 month terms and average 6 months’ period of interest only.

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