Why refinancing matters to a first-time founder
Refinancing can lower monthly payments, extend runway or remove restrictive terms, but fees and longer repayment can increase total cost. Founders should compare complete cash flows and covenants, not only the advertised rate, and begin before existing debt matures.
Examples of refinancing
A company replaces a ₦200 million loan charging 10% with a three-year facility charging 7%. It pays a 2% arrangement fee and an early repayment charge. The founder models both loans to confirm whether lower interest outweighs fees and the revised schedule.
Common misunderstanding
Refinancing does not erase debt and is not always cheaper. Extending maturity may reduce each payment while increasing total interest. It also differs from restructuring distressed debt, although a negotiated replacement facility can form part of a broader restructuring.
When to use it
Use it when rates, cash needs, maturity or covenants make existing finance unsuitable. Request comparable term sheets and calculate fees, security, guarantees and total repayment. Lending, tax and registration rules vary, so review documents with qualified local advisers.