If you financed equipment, an acquisition, or a growth initiative in 2022 or 2023, you likely locked in rates that no longer reflect today’s market. This is where debt refinancing may present a valuable opportunity for your business. Whether you run a manufacturing company, a healthcare services business, or another middle-market enterprise, the same dynamic applies. Interest rates have come down. Credit spreads have compressed. The debt you took on 18 to 36 months ago may now be 200 to 400 basis points above what you could secure today, making debt refinancing a compelling option.
On a $30 million facility, that translates to $600,000 to $1.2 million per year in excess interest expense.
Your lender is not going to call you to point this out.
Why Rates Are Lower Now
Two things have changed since you last borrowed.
Base rates have declined. SOFR peaked at approximately 5.4% and has since fallen to 3.77%, with forecasts projecting further decline to around 3.30% by year-end. If your facility is floating rate, you have already captured some of this benefit. If you locked in a fixed rate or a spread that reflected 2022-2023 risk premiums, you have not, so debt refinancing could now save your company substantial interest.
Credit spreads have compressed. Lenders are competing for deals. Banks that avoided middle-market lending two years ago are now actively pursuing it – particularly for companies with tangible assets or predictable cash flows. Private credit funds, sitting on record dry powder, have reduced spreads to win business. The result: spreads have tightened 100 to 200 basis points across most credit profiles.
Together, these shifts mean that a middle-market company that borrowed at 10% to 11% all-in during 2023 might refinance today at 7% to 8.5% – depending on lender type and credit quality. As a result, debt refinancing makes financial sense for many businesses.
The Simple Question to Ask
How does your current all-in rate compare to today’s market?
| Lender Type | Current Spread (over SOFR) | All-In Rate (approx.) |
|---|---|---|
| Banks (quality credits) | S + 250 to 325 bps | 6.0% to 7.0% |
| Private credit | S + 500 to 600 bps | 8.75% to 9.75% |
If you are paying materially more than these benchmarks – and your business has performed reasonably well since origination – you may be overpaying.
The Math on Refinancing
Refinancing is not free. There are transaction costs: legal fees, lender fees, and potentially prepayment penalties on your existing facility. These typically run 0.5% to 2.0% of the loan amount.
The question is whether the annual savings justify these upfront costs.
Example: A $30 million term loan originated in 2023 at 10.5% all-in. Today’s market rate for this credit: 7.5%.
- Annual interest at 10.5%: $3.15 million
- Annual interest at 7.5%: $2.25 million
- Annual savings: $900,000
If transaction costs are $450,000 (1.5% of facility), the breakeven is six months. Every month beyond that is money in your pocket.
For most middle-market companies with 2022-2023 vintage debt and two or more years remaining on their facility, the math works and refinancing is worth investigating.
What About Your Lender Relationship?
Many owners hesitate to explore refinancing because they value their banking relationship. This is understandable – but it should not prevent you from understanding your options.
Here is the reality: your lender priced your facility based on market conditions at the time of origination. Those conditions have changed. Your lender has no obligation – and typically no incentive – to proactively reduce your rate.
Exploring alternatives does not mean abandoning your lender. In many cases, the simple act of getting competitive proposals motivates your existing lender to improve terms. They would rather reprice than lose the relationship.
Running a process is not disloyalty. It is how capital markets work.
When Refinancing Makes Sense
Consider refinancing if:
- Your facility was originated in 2022 or 2023 at an all-in rate above 9%
- Your business has performed at or above plan since origination
- You have at least 18 to 24 months remaining on your facility
If all three conditions are true, you are likely a candidate for better terms. Therefore, refinancing may be your best move.
The Bottom Line
Interest rates have come down. Credit spreads have compressed. If you borrowed in 2022 or 2023, there is a reasonable chance you are paying more than you need to.
This does not mean you should refinance. It means you should check.
Review your current rate. Compare it to today’s market. Run the breakeven math. If the numbers work, get competitive proposals. If they do not, you have lost nothing but an hour of analysis.
Your lender will not tell you that you are overpaying. That is your job to figure out.
Platforms like CAPX allow you to see competitive pricing from multiple lenders – banks and private credit – simultaneously, so you can benchmark your current rate against what the market would offer today.
