Can I get my lender to lower the rate on my business loan without refinancing?

Repricing, amendment, refinance: the difference

Owners use "refinance" for any change to a loan's rate. Lenders separate three things, and the distinction decides what each one costs.

A repricing is the narrowest of the three. If the maturity is close, the conversation is really an extension. If the business needs more money or a different structure, it is a refinance. See moving loans to a new bank and moving from private credit back to a bank.

Why a lender would agree

Lowering a spread costs the lender income, so it needs a reason. There are two, and the strongest requests have both.

• The business is a better credit than when the loan was priced. Leverage has fallen, coverage has risen, earnings are steadier, or the event that justified a higher spread, such as an acquisition or a weak year, is now behind the company. The spread was set for the risk at closing, and the risk has changed.
• The lender could lose the loan. If other lenders would refinance the business on better terms, the current lender's choice is a lower spread or no loan. Lenders weigh the cost of finding a replacement borrower against the income they give up.

A strong credit with no alternative gets a polite hearing. A strong credit with term sheets from other lenders gets a negotiation. That does not mean bluffing: lenders can usually tell a real process from a threat, and a request built on a market the business has actually tested is far more persuasive.

Check the agreement before you ask

Three clauses decide what a repricing will cost and whether it is needed at all.

• Soft call protection. Many private credit loans, and some bank loans, charge a premium on a repricing in the early years, not only on a refinance. It is written to stop a borrower lowering its spread soon after closing. See call protection and prepayment penalties.
• A pricing grid. Some loans already step the spread down as leverage falls. If yours does, the reduction may arrive on its own with the next compliance certificate, and the request becomes a check that the grid has been applied. See pricing grid.
• The rate floor and hedge. A lower spread helps less if a floor holds the base rate up, and an interest rate swap fixed to the old loan may need adjusting. See interest rate floor and swap vs cap.

If the loan has a pricing grid, read it before you negotiate. Some borrowers ask for a reduction they were already owed.

Building the case

Treat the request as a short credit memo, not a phone call. The lender's relationship manager has to take it to credit, and what you give them is what they will present.

• Results since closing. Trailing twelve months against the numbers the loan was underwritten on: EBITDA, leverage, debt service coverage and fixed-charge coverage. See LTM and TTM.
• Covenant history. Every compliance certificate since closing, with headroom on each test. A borrower that has never come close to a covenant is a different risk from one that has needed waivers. See compliance certificate.
• What has changed and why it will last. Customer wins, margin improvement, an acquisition absorbed, debt paid down. Lenders reprice on durable improvement, not one good quarter.
• What the market would offer. Term sheets or indications from other lenders, on comparable structure. A lower spread on a loan with tighter covenants or more amortization is not a like-for-like comparison, and the current lender will point that out.
• The specific ask. The spread you want, and any other terms: a lower floor, a covenant reset, a reduced unused fee on a revolver. A precise request is easier to approve than an open one.

Midas Partners's conventional term-loan checklist is the core of that file: P&L, year-to-date P&L through last month-end, balance sheet, debt schedule, and AP aging. The same file, with a financing model and an underwriting memo, is what other lenders would need to give the indications that make the request credible.

What it costs, and how to weigh it

A repricing is cheaper than a refinance, but not without cost. Expect the lender to charge an amendment fee, to ask you to pay its legal costs, and, inside a soft-call period, to apply the premium on the repriced amount. Your own counsel will review the amendment.

Weigh those costs against the interest saved over the time you expect to keep the loan, as you would a refinance. A spread reduction worth a little each year on a loan you plan to repay soon may not cover the costs; the same reduction on a loan you will hold to maturity can be worth a great deal. See the refinance break-even and interest rate vs all-in cost.

Watch what comes with the lower spread. A lender may ask for something back: a longer call period, a tighter covenant, a reporting change or an extension of the guarantee. Each has a cost that belongs in the comparison.

When to refinance instead

A repricing keeps everything else about the loan. That is its advantage and its limit. Refinance instead when the business needs more than a lower spread.

• More debt. An acquisition, a recapitalization or growth capital needs a new loan, not an amendment.
• A different structure. Moving from a fund loan to a bank, splitting a term loan and an asset-based line, or replacing a senior and subordinated stack with one loan.
• Terms the lender will not change. A personal guarantee you want released, covenants that no longer fit, or a lender that has become hard to work with.
• A large gap to the market. If other lenders would offer much better terms and the current lender will only meet part of the gap, the cost of moving may be worth it.

Often the best route is to test the market first. A competitive process produces real term sheets; the current lender sees them and either reprices to keep the loan or the business refinances on better terms. Either outcome beats paying an outdated spread. Lenders see a blind teaser first, and the client approves each lender by name before it learns who the company is, so the current lender learns of the process when the business chooses to tell it.