Guide to VHDA Mortgages for First-Time Homebuyers

Buying a home in Virginia is an exciting process that you have probably been looking forward to for years. If you are a first-time homebuyer, the process of choosing a mortgage lender, deciding on a mortgage type, and applying for a home loan may seem intimidating.

At F&M Bank and F&M Mortgage, we have been helping Virginians achieve their dreams of homeownership since 1908. It is our goal to make the home buying process as simple as possible so that you can focus on the fun part – moving into your new home.

F&M Mortgage is proud to offer Virginia Housing Development Authority (VHDA) loans to the members of our community. These specialty home loans are designed to decrease some of the financial barriers that keep many Virginians from achieving their dreams. In this article we will outline the different types of VHDA loans, their specific loan requirements, and the mortgage loan application process. Let’s find out if a Virginia Housing loan is right for you!

Relator showing house to couple

What is a VHDA loan?

The Virginia Housing Development Authority (VHDA) is a not for profit, public mortgage finance company. Founded in 1972 to help Virginians afford quality housing, the program operates using no state taxpayer money. The VHDA relies on the private purchase of Virginia Housing Development Authority bonds to fund its loan and grant programs. The VHDA focuses on providing loans to first-time homebuyers and developers who build quality rental housing. Virginia Housing is currently celebrating their 50th anniversary and has helped over 240,000 Virginia families afford homes.

How does a VHDA home loan work?

While VHDA loans are targeted for first-time homebuyers, some loans are appropriate for repeat homebuyers as well. In order to help the most people with the most need, VHDA eligibility includes an upper limit on both the borrower’s income and the home price. VHDA loans are designed for borrowers with low to moderate incomes. Virginia Housing loans are 30-year fixed-rate loans with a low 3 percent down payment requirement. The VHDA also offers grants to help Virginians afford their down payments and closing costs.

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What are the benefits of getting a VHDA home loan?

If buying a home seems financially out of reach, consider a VHDA home loan. F&M Mortgage offers VHDA loans because we support Virginia Housing’s proven track record of helping our community afford homeownership. Some benefits of a VHDA home loan include:

  • Predictable payments with a 30-year fixed interest rate
  • Small down payments
  • Free homebuyer classes
  • Pre-approval availability
  • Low credit score requirement

Who is eligible for a Virginia Housing loan?

VHDA loans are only available for borrowers who intend to use the home as their primary residence. If you are planning to buy a home as an investment property, second home, use the house for a business, or sublet part of the space, you will not qualify for a VHDA loan.

Borrowers cannot have a net worth greater than 50 percent of the intended home purchase price. Your net worth calculation does not include retirement savings, life insurance plans, or the value of your belongings. Any cash that will be used to help fund your down payment will not be calculated into your net worth.

Income limits as well as home price limits for VHDA loans vary by region across the state. A table outlining these limits can be found on the Virginia Housing website. The maximum VHDA loan limit for a home in the Charlottesville area is $375,000. The two-person maximum gross household income for that area is $90,000. Limits vary by county so check with your lender for more specific amounts.

How do I apply for a VHDA loan?

Only VHDA approved lenders can offer Virginia Housing loans to the community. Approved lenders must comply with strict policies and requirements in order to qualify. Staff must be qualified and experienced with VHDA loans, adhere to Virginia’s fair housing policy, and demonstrate a proven track record of performance. F&M Bank is proud to be an approved VHDA lender.

To apply for a VHDA loan, stop by any F&M Bank location or apply online. To apply online:

The VHDA requires all applicants to complete their homebuyer education class before the loan can be approved. The class can be taken online or in a local classroom. This free class is available to anyone that wishes to learn more about the homebuying process and VHDA loans, even if you are not ready to apply for a loan.

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What are the different types of VHDA home loans?

 Virginia Housing Conventional

The Virginia Housing Conventional loan is available to both first-time and repeat homebuyers. Borrowers may use the loan to make a home purchase or fund a limited cash-out refinance. The Virginia Housing Conventional loan is a 30-year fixed-rate loan offering the lowest conventional mortgage insurance rates possible. Eligibility includes a minimum credit score of 640, 3 percent down payment, and maximum 45 percent debt-to-income ratio.

Virginia Housing Conventional – No Mortgage Insurance (NMI)

For borrowers with a higher credit score, the VHDA offers their conventional loan with no mortgage insurance. To qualify for the Virginia Housing Conventional – NMI loan borrowers must have a minimum credit score of 660.

Virginia Housing Plus Second Mortgage

If you need help funding your down payment and closing costs, you may consider a Virginia Housing Plus Second Mortgage loan. This option is technically two separate loans – one to pay for your new house and a second mortgage to cover your down payment. Both mortgages are 30-year fixed-rate loans with no prepayment penalties.

Only available to first-time homebuyers, this loan can cover your entire down payment amount as well as your home. At closing, borrowers must have 1 percent of the home purchase price available as cash. Borrowers with a higher credit score (680 or above) can also finance part of their closing costs in the second mortgage. The maximum second mortgage amount is 3 to 5 percent of the home purchase price.

Women holding Check

Virginia Housing Loan Combo

If you are looking to get the most out of a VHDA loan, ask your F&M Mortgage Lenders if you qualify for a loan combo. The Virginia Housing Loan Combo bundles your VHDA loan with a down payment assistance grant and mortgage credit certificate (MCC) homebuyer tax credit.

Apply Today for a Virginia Housing Mortgage

Ready to get pre-approved for a VHDA loan? F&M Bank is an approved VHDA lender. Call us today for help choosing the right Virginia Housing loan. You can also start our online mortgage application or apply in person at your nearest branch.

F&M Mortgage, a division of F&M Bank, has been helping Virginians become homeowners in the Shenandoah Valley for more than a century. Don’t let the mortgage process overwhelm you. Our Mortgage Advisors pride themselves on offering friendly, personalized service, with the kind of local expertise you only find in people who live and work in your community. With VDHA pre approval you can start shopping for the house of your dreams in northern Virginia.

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Commercial Financing Best Practices for New Business in Shenandoah Valley

Launching a new business requires expert wrangling of multiple moving parts. Luckily F&M Bank is here to help you with the financial side of starting or growing your small business. Getting a small business loan in the Shenandoah Valley should not be complicated. F&M Bank’s friendly lending team is here to provide the information and insight that you need to obtain the best commercial financing for your sole proprietorship business in Virginia.

What is a business loan?

When a bank provides financing through a business loan, they are lending your business the money it needs in return for interest and fees. It is your responsibility as the business owner to make scheduled payments in order to return principle and interest to the bank over a set period of time. The business loan interest rate and length of the loan are typically determined based on the credit worthiness of the borrower and the type of loan.

 

Make sure your business name is available in Virginia

What is a sole proprietorship?

Sole proprietorships are the smallest of the small businesses. Any individual conducting business activities automatically falls into the role of sole proprietor. Jewelry makers, writers, graphic designers – anyone working for themselves and making money is operating a sole proprietorship business. There is no separation between the business and the owner in a sole proprietorship. You get all the profits but also all the debt and liability that come with running the business. There are distinct advantages and disadvantages to running a sole proprietorship business.

Benefits of a sole proprietorship

  • Licensing and permitting for a sole proprietor business is simple and inexpensive.
  • Profits from a sole proprietorship are written up as your personal income and do not require separate tax filing.
  • Business decisions are easy because there are no employees or board members to consult.

Disadvantages of a sole proprietorship

  • Obtaining funds to start and run a sole proprietorship can be difficult as there are limited opportunities for investors to take a share of the business.
  • Loan approval can be difficult for a sole proprietor with no business credit history and limited collateral.
  • Personal liability as a sole proprietor is unlimited since there is no legal distinction between the owner and the business.

 

Commercial loans are variable rate

 

Types of Business Loans

When you need money for your small business, there are many different types of commercial loans from which to choose. It can be confusing trying to decide which type of financing is best suited for your unique business needs. Here is a brief overview of some of the different business loan financing options available. The knowledgeable associates at F&M Bank can help you narrow down the best loan product for your small business.

Business Term Loan

A lump sum loan, business term loans have fixed interest rates and predetermined payback schedules. A business term loan will give your company an injection of cash to use for a large purchase. As soon as you receive the loan amount you will begin to accrue interest and start monthly payments.

Business Line of Credit

Similar to a credit card, a line of credit is a preapproved loan amount that can be accessed over time. Rather than receiving a lump sum payment, business owners can draw from their commercial line of credit as needed. With a business line of credit, you only pay interest on the actual money borrowed and the not the entire approval amount. One loan application gives you access to funds that you can take as needed during a set draw period.

 

Business credit scores are on a 1 to 100 scale

 

Government Assisted SBA Loans

SBA business loans in Virginia offer lower interest rates and more lenient conditions for loan approval through backing from the U.S. Small Business Association. This government funding allows banks to make riskier loans to small and fledgling businesses by guaranteeing to cover part of the losses should the small business default on the loan. There are fees and restrictions associated with SBA loans but, for those who qualify, SBA loans can provide the funding you need to stay afloat and grow.

Merchant Cash Advance

A business cash advance is appropriate for businesses that receive a high volume of credit card sales. As the business owner, you receive a cash advance that is recouped by the bank through merchant account services fees and interest. Each time a client pays with their credit card, a larger than normal fee is subtracted from your profit to pay back the cash advance over time.

Equipment Loans

When your business has a specific need for new equipment, whether it be furniture, computers, or heavy machinery, an equipment loan is the proper choice. The bank will consider the cost of the purchase, expected lifespan of the equipment, and your ability to repay the loan. Typically, the equipment itself will serve as collateral for the business term loan.

Business Credit Cards

Much like personal credit cards, business credit cards can provide the purchasing power you need to make it through an off season or cover a large expense. Business credit cards also build your business credit score which will help you qualify for future commercial loans. Using a business credit card instead of a personal account helps sole proprietors keep business expenses separate from their personal spending. This can help at tax time by making it easy to find and list your business deductions.

Commercial Mortgage Loans

When you need land for your business or a commercial building, a commercial mortgage is the first step. Warehouses, offices, and retail space can be purchased for your business even if you are a sole proprietorship. Owning the commercial property that your business relies on can add a sense of security as well as increase your business credit and equity over time.

Personal Loans

Because personal and business finances are intermingled as a sole proprietor, a personal loan is a suitable option when you need funding. The loan amount of a personal loan may not be as large as a commercial loan, but the approval process may be simpler than a business loan. Your personal credit history and debt to income ratio can help you secure the money you need to help your business succeed.

 

Tax returns are needed to apply for a business loan.

 

How do I get a business loan?

Applying for a business loan is similar to any car loan, mortgage, or personal loan you may have received in the past. Your personal credit history, cash flow, debts, and collateral will be taken into account by a local lending team. In addition to your personal finances, the bank may consider the type of business you own, your commercial profits and debts, and how long your business has been operating.

If you are thinking of getting a small business loan in the Shenandoah Valley, gather the following documents:

  • Business plan
  • Profit/loss forecast and growth plan
  • Business license and registration
  • Personal and business tax returns
  • Bank account statements
  • Invoices and sales records for your business
  • Current lease or mortgage for your business

Get the commercial funding you need from F&M Bank

F&M Bank proudly offers business lending in the Shenandoah Valley. Small businesses and sole proprietorships help our community thrive, and we are here to support your financial growth. Offering the best business loan interest rates in Harrisonburg & Augusta County, our knowledgeable associates use local insight to make sure you get the best commercial loan for your needs.

Commercial lending doesn’t have to be complicated. Contact F&M Bank and we will be glad to help answer your questions about getting started. Stop by one of our convenient locations to begin the small business loan process today.

Should I Bank Local in Virginia? What to Consider When Choosing a Financial Institution

Are you new to the Shenandoah Valley and having trouble deciding on where to bank? Unhappy with your current financial institution and looking to switch? Whether you’re looking for a financial institution for personal deposit accounts, mortgage financing, or business banking needs, it can be tough to decide whether to choose a large bank that you see across the country or a local bank with roots in your community, such as F&M Bank. In this article, we’ll help you understand what makes local financial institutions stand out, along with some perks of community banks that you may not be aware of.

What are the different types of financial institutions?

Finding a local, community-focused financial institution such as F&M Bank is ideal, as F&M offers robust digital banking capabilities as well as conveniently located physical branch locations.

Banks are a crucial part of the U.S. monetary system because they move U.S. currency and provide necessary liquidity to personal and business entities. There are two sets of bank regulators, Federal and State. At the federal level, The Office of the Comptroller of the Currency (OCC), part of the Treasury, charters and supervises national banks. At the state level, banks that don’t work across state lines can be state-chartered. The FDIC oversees state-chartered banks that aren’t members of the Federal Reserve System.

 

F&M Bank can be traced to 1908, when it started its operation as a state-chartered bank; in 1983 F&M Bank was incorporated in Virginia and became a registered bank holding company. As a bank holding company it is a full-service financial institution, offering complete consumer, business, and financial services – including a full array of digital banking capabilities as well as physical branch locations for your banking needs (as opposed to institutions such as Internet-only banks and credit unions). You will even find that F&M Bank’s online services offer the same capabilities as national banks!

  • Internet banks: No physical branches, just a website and mobile banking app. Online banks may not have national charters themselves, instead partnering with a traditional bank to hold customer deposits.
  • Credit unions: Financial institutions that are owned by their members and have certain criteria for membership.

 

Differences between banks and credit unions

F&M Bank prioritizes benefitting the community they serve, which you will not typically find from a national bank or credit union.

Working with a local financial institution like F&M Bank will likely be your best option. When deciding on where to open a bank account, consider some of the key differences between banks and credit unions:

 

  • Credit unions typically have fewer branch locations and financial products/services than banks.
  • Local community banks like F&M Bank benefit their community through local partnerships, events, and volunteer opportunities.
  • F&M Bank offers the most convenience and resources through digital banking on your mobile or other personal devices, along with a variety of options for nearby, conveniently located physical branch locations.
  • Local banks like F&M Bank offer unrivaled expertise related to your community, understanding how to resolve your specific needs for personal and business banking and lending that credit unions or nationwide banks are unable to provide.

Benefits of banking local for your personal deposit accounts

When it comes to your checking and savings accounts, it’s nice to have branch locations conveniently located near your house or job. And not just any branch, but one staffed with friendly employees who live and work in the same community as you. For example, F&M Bank has developed a lot of local expertise over the years. We’ve been supporting personal banking needs in the Shenandoah Valley since 1908. Local banks like F&M also offer branch services like on-site safe deposit boxes and in-house notary services.

 

Of course, web-based banking tools mean you don’t have to visit a branch just to deposit a check or transfer money between accounts. Local banks have embraced technology in recent years and now offer the same tools as the bigger banks. Enjoy the convenience of banking where and how you want with online banking, mobile banking, person to person payments, and mobile wallet. F&M Bank’s rating in the App Store is 4.8 out of 5 stars – higher than you will find for other options both nationally and locally.

Benefits of banking local for your lending needs

For your lending needs, it is best to look for an institution that has expertise in your community that can offer flexible options to meet your financing needs.

Applying for a loan can be stressful, especially if it’s your first time. The friendly loan officers at your local bank can guide you through the process, turning it from stressful to smooth and pleasant. Whether a home, car, or personal loan, they’ll help you review your options to find the right loan with a payment plan you can afford.

Mortgage Lending

While there are national trends in real estate, it’s still a very local business. The housing market can vary widely from community to community, so working with a local mortgage lender gives you access to local expertise, as well as more flexible lending options. Learn more about the mortgage loans offered by F&M Bank.

Personal Loans

Whether you need an Auto Loan to finance the purchase of your next vehicle, or a general consumer loan to use for a variety of expenses, local decision-making helps you get the right loan. Enjoy swift and local application processing, and greater flexibility in approving loans, from your local bank. When you come to a local lender like F&M Bank, we aim to put you at ease with the loan application process. Learn more about our personal loans.

Benefits of staying local for Wealth Management

Choosing a financial advisor is all about trust. Will they put your best interests first? Do they have experience working with clients who share your background, such as small business owners, blended families, etc.? Whether you are in Harrisonburg or closer to Broadway and Edinburg, you can find local financial advisors who will offer a higher level of service and possess a wealth of local knowledge.

 

Staying local for Wealth Management means working with a financial advisor who understands your community and can recommend local investment opportunities such as those on our Local Market Dashboard.

Securities offered through INFINEX INVESTMENTS, INC. Member FINRA/SIPC. Farmers & Merchants Financial Services, Inc. is a subsidiary of Farmers & Merchants Bank. Infinex is not affiliated with either entity.

Bank local with F&M!

Now that you understand the benefits of banking locally, you probably want to find a local financial partner who understands your needs. At F&M Bank, you’ll find personalized attention with customizable solutions for your personal banking needs. In-house decision-making simplifies loan applications and local financial planners understand the community they serve. Get started now! Contact us or visit your nearest branch location in Harrisonburg, Augusta County, or Staunton in the Shenandoah Valley.

National Ag Day with F&M Bank

National Ag Day

 

National Ag Day is March 22, 2022!  Virginia’s agricultural production is one of the most diverse in the nation. Many Virginia commodities and products rank in the top 10 among all U.S. states.  Our local farmers, and other agriculture experts, represent a leading group of industry movers and shakers that support our economy and sustain life for our region, and beyond.

 

 

Virginia is home to over 43,000 farms that cover nearly 8 million acres across the Commonwealth.  98% of all farms in the United States are family-owned and operated.  These families sacrifice a lot to feed our communities and sustain life throughout our region.  F&M strives to thank farmers throughout the year and we encourage our community to take a moment next week to thank a local farmer as we celebrate our farming community!

 

Farming is the biggest private industry in Virginia

 

F&M has been supporting local farmers for over 100 years.  We’ve helped farmers navigate several economic cycles from recessions and droughts to boom periods with flourishing production.  These experiences and partnerships have helped us develop tailored products that include equipment financing, land expansion, cattle purchases, waste management funding, and lines of credit.

 

Learn More about our line of Ag products here, or contact one of our Agri-Business specialists at agribusiness@fmbankva.com.

 

 

 

How to Open a New Account Online

ONLINE ACCOUNT OPENING 

Open a browser and navigate to https://www.fmbankva.com/

If you are an F&M Bank customer with an online banking user ID and password, enter that information at the top right to login.

If you need to enroll in online and mobile banking, choose Enroll in Online Banking directly beneath the login portal.

Step 1 to enroll in online banking from a computer

 

 

 

 

 

 

 

Enter your User ID and password to login to online banking and open your new account.

Setup Online Banking step 2

 

 

 

 

 

 

 

 

 

Please note, for security purpose, two-factor authentication is required. A temporary passcode by text message, phone call, or by Authy app if previously installed.

Setup Online Banking step 4

 

 

 

 

 

 

 

 

 

 

 

Click once on the three dotted button at top right (…)

Choose Add an account and on the next screen, click on Open an Account.

 

Step 4 to open a new account

 

 

 

 

 

 

 

 

 

 

If you do not have an F&M Bank account, choose New Account to get started.

If you are an F&M Bank customer, choose Existing Customer to get started.

Apply Today New Account Instructions

 

 

 

 

 

 

 

 

Please note: After 15 minutes of inactivity, the process will time out for your security.

 

On the next screen, click on Personal.

Type of Account_Personal option

 

 

 

 

 

 

 

Here, you will choose your preferred banking location along with the account you would like to open: Checking, Savings, Money Market or CD. You are only a few steps away from your new account!

Getting Started Open an Account step 1

 

 

 

 

 

 

 

 

 

 

 

Be sure to click the + sign to choose your debit card option.

 

Getting started open an account step 2

 

 

 

 

 

 

On the next screens you will enter your personal information, contact details, joint account, and beneficiary status, and upload a photo of your Driver’s License or State Issued Photo ID. If you are a current F&M Bank customer, some of the information will auto-fill for your convenience.

Getting Started Open an Account step 3

 

 

 

 

 

 

 

 

Once you complete the steps listed above, you will be prompted to review disclosures, and electronically sign to approve your new account.

Getting Started Open an Account step 4

 

 

 

 

 

 

 

Within two business days, you will receive a confirmation email from F&M Bank. If no action is taken, you will receive a reminder email after ten days.

Congratulations on your new F&M Bank account! We value your business!

 

 

How to Make a Loan Payment Online

Open a browser and navigate to https://www.fmbankva.com/

If you are an F&M Bank customer with an online banking user ID and password, enter that information at the top right to login.

If you need to enroll in online and mobile banking, choose Enroll in Online Banking directly beneath the login portal.

Enter your User ID and password to login to online banking.

 

 

 

 

 

 

 

Please note, for security purpose, two-factor authentication is required. A temporary passcode will be delivered by text, phone call, or by Authy app if previously installed.

Setup Online Banking step 4

 

 

 

 

 

 

 

 

 

 

 

Click on the tile with your loan account information

Setup Online Banking step 3

 

 

 

 

 

 

 

 

 

Click on the tile Pay from another Bank

Setup Online Banking step 4

 

 

 

 

 

 

 

 

 

Enter your payment amount and click continue.

Setup Online Banking step 5

 

 

 

 

 

 

 

 

 

 

 

On this screen, click the down arrow beside Pay from Account to select from a payee that has been previously setup. Click Continue and confirm your payment on the next screen. You will receive a confirmation email that payment has been issued.

 

Setup Online Banking step 6

 

 

 

 

 

 

 

 

 

 

 

 

To setup a new payee, click the grey box for Add Payment Option shown above.

On this screen, confirm your personal information is correct and enter the information for your external payment options. Click add payment.

 

Setup Online Banking step 7

 

 

 

 

 

 

 

 

 

 

 

 

Now that your new payee has been added, you will be redirected to the previous screen.

Click the down arrow beside Pay from Account to select your payee, click continue and confirm your payment on the next screen. You will receive a confirmation email that payment has been issued.

Setup Online Banking step 6

 

 

 

 

 

 

 

 

 

 

 

 

Thank you for making your loan payment online with F&M Bank!

How to Make a Loan Payment with Online and Mobile Banking

Making your personal or auto loan payment is simple and easy with online and mobile banking from F&M Bank. If you have previously enrolled in online banking, please skip to Step 2. If you are not enrolled in online banking, please follow Step 1 to enroll.

STEP 1 – ON YOUR COMPUTER

Online Banking

Open a web browser and type accounts.fmbankva.com/enroll and enter your:

    • Social Security number
    • Account number
    • Email address
    • Phone number

STEP 1 – ON YOUR PHONE

Mobile Banking

    • Open the camera app on your phone;
    • Open your phone camera app and place over QR code below;
    • Open the link that appears on your screen;
    • Download the F&M Mobile Banking App and click “Enroll”

QR Code for quick access to enroll in F&M Bank's online banking

 

 

 

 

 

 

QR code not working for you? No problem! Simply open the App Store for iPhone or Google Play for Android and search for “F&M Mobile – VA” (image shown below) to enroll.

 Image of F&M Bank logo

 

 

 

 

 

To make your loan payment, follow these simple steps!

STEP 2: Under “Select account type,” click on “Personal”

STEP 3: Enter your Loan Account Number

STEP 4: Enter your Social Security Number and Date of Birth

STEP 5: Click “Continue” and follow the simple instructions

Once you’ve enrolled, you’ll be able to schedule your payment by clicking on “Loan Information” and then selecting “Pay from another bank.”

Check out instructions for how to make your loan payment on the F&M Bank blog:
fmbankva.com/how-to-make-a-loan-payment-online

Set up payments within F&M Online and Mobile Banking.

If you are currently enrolled in F&M Online & Mobile Banking, you can pay your loan by clicking on “Loan” and select “Pay from Another Bank” to setup your external account.

 

Cash Flow, Debt, & Refinancing for Virginia Small Business Owners

Are you wondering if you should refinance a small business loan? Many businesses experienced the unexpected last year, and now it’s time to get back on track or strengthen your existing operation. Small business debt consolidation or refinancing could be an important part of your strategy this year. In this article, we’ll explain how to refinance business debt, cover the pros and cons, and show you how to get started. If you have any questions, call us at (540) 896-8941.

 

What is Debt Refinancing?

Get to know more about debt financing and its potential benefits for your small business's finances.

When you refinance debt, you take out a new loan (usually with better terms and/or interest rate) and use it to pay off the old loan. The main benefits of refinancing include saving money on interest, reducing your monthly payment amount, and/or changing the loan term.

When it comes to business debt, consolidating your existing loan(s) with a lower-interest commercial loan can boost your cash flow by lowering your monthly payment and shortening your repayment period.

 

What to consider before refinancing small business debt

Depending on what you are looking to get out of your debt refinance, there are different factors to consider.

There’s more than one reason to consider refinancing your small business loan(s). Perhaps the payments you’re making on your current business loan primarily go toward interest rather than principal. Refinancing your business loan, also known as debt consolidation, can help you qualify for a longer-term loan with more affordable rates. Here are the most important factors to consider before applying:

  • Debt refinancing does involve paying interest on any interest already compounded in your current loan.
  • Does the loan you’re looking to refinance have prepayment penalties? Check the fine print first.
  • Have interest rates fallen since you took out your current loan? Consolidating your business debt into a lower interest loan could free up extra cash to put toward other needs and expenses.
  • Has your total debt level changed since the original loan was made? Business lenders will want to know the debt-service coverage ratio (DSCR) for your company. DSCR is used to calculate your business’s solvency and ability to repay your debt. So if you’ve taken on more debt recently, you may have trouble qualifying for an attractive refinance loan.

Now that you’ve considered different factors, your ultimate decision should depend on what you’re hoping to get out of your debt refinance. For example, in spite of a downside, loan consolidation may still be the right move for your business if you’re looking for a longer repayment term, lower interest rate, and/or less frequent payments.

 

5 Questions to ask your business lender about debt refinancing

Your business lender can help guide you to a better understanding of debt refinancing and its relevance to your business.

When pursuing any kind of business loan, including debt refinancing, don’t be afraid to ask questions. Your business lender is here to help you review all business loan options and find the best solution to meet your needs. Here are some of the things you may have questions about:

  • How long will my new loan term be?
  • What are the closing fees?
  • Will the loan have a fixed or variable interest rate?
  • Is there a prepayment penalty?
  • If I don’t qualify for debt refinancing now, what can I do to improve my application next time?

 

Debt Consolidation vs. Refinancing

Debt consolidation and debt refinancing are sometimes used interchangeably, but there are differences between the two.

While debt consolidation and debt refinancing can be used interchangeably, there are some differences between the two. Here’s what you need to know:

  • Debt consolidation is a type of debt refinancing.
  • The purpose of debt consolidation is to take several different loans or credit card balances and pay them all off with one new loan.
  • Debt refinancing generally takes one loan and replaces it with a new one to achieve a better interest rate and loan terms.
  • The process of applying for debt consolidation or refinancing is the same. You’ll need to provide basic information about your business’s financial situation and credit history. You’ll also need to list the debt(s) you will be paying off with the new loan.

 

Pros and Cons of Debt Refinancing

It is important to consider both the benefits and the potential downsides of debt refinancing.

As with any big financial decision, it’s important to weigh the pros and cons first.

 

Potential Downsides of Refinancing

  • Prepayment penalty: Does your current loan have a prepayment penalty? If so, how much? You may still save more in interest by refinancing, but it’s something to check out. Also, if you really need to reduce your monthly debt payment to improve your cash flow, it may still be worth paying the prepayment penalty.
  • Getting stuck in a debt cycle: If this isn’t your first time refinancing, you may want to take a closer look at your business’s financial situation. Will refinancing this time help you pay the debt off or are you just perpetuating a debt cycle for your business?

 

Benefits of Debt Refinancing

  • Lower your monthly payment to improve cash flow and invest in your business.
  • Lower your interest rate to save money and off your debt faster.
  • Potentially improve your credit score
  • Refinance into a larger loan to take “cash out” and invest in your business or meet working capital needs.

 

How does debt refinancing work?

Your business lender is here to help you review all business loan options and find the best solution to meet your needs.

To start the debt refinancing process, apply for a new business loan from your business lender. At F&M Bank, we offer a variety of business loans, including small business financing through the SBA and traditional term loans for qualified borrowers. And as a longtime community bank, we are dedicated to investing in and supporting small businesses throughout the Shenandoah Valley. Our business lenders pride themselves on building lifelong relationships with clients.

 

Learn more about debt refinancing from F&M Bank!

Since 1908, F&M Bank has been offering business banking services in the Shenandoah Valley and beyond. Trust the future of your business to our expert lending team. Wherever you are in the Shenandoah Valley, from Harrisonburg to Staunton, you can contact a member of our team or visit one of your local branches in Augusta, Page, Rockingham, or Shenandoah county to learn more about debt refinancing or to apply for a new business loan today.

Our friendly and experienced business lending team is ready to answer your questions and help you make the best choices for your company. Have questions? Get in touch today!