The Bottom Line

A Regular Feature to Help Your Business Improve Its Profitability

The Bottom Line: Increase Your Profits By Reducing Your Debt Service

There has never been a better time to refinance your commercial debt than right now. Without laying off one employee, or cutting one supplier or vendor, businesses can potentially improve their cash flow by refinancing their debt. Those savings could be significant.

Businesses of all sizes –in all industries – face the same issue every year.  How can the company increase its profitability? For many businesses, the answer lies in controlling costs. However, the marginal increase in profitability that results from slashing the typical expenses and employee – related costs rarely make a real difference in your bottom line.

In addition, all businesses face large increases in their healthcare costs with each passing year. As the anticipated effects of the federal Patient Protection and Affordable Care Act (dubbed "Obamacare" in the press) go into effect, businesses will be forced to cut other, non healthcare costs just to maintain the prior year’s results. Businesses today face many headwinds: competitive risks, escalating costs from inflationary forces, and higher healthcare costs imposed by federal laws. 

Businesses of all kinds should recognize one fact: interest rates on commercial loans are still at historical lows. If your current debt hasn’t been refinanced in the last 3 years, it is time to examine what your debt service – the amount of your interest payments – is really costing you. Simply compare what you pay currently against what could you be paying under current market rates.

The 1 Month LIBOR (London Interbank Overnight Rate) rate is used by many regional banks as a base rate for their interest rates. Another base rate used by many regional banks is the Wall Street Journal Prime Rate. As of July 22nd, the 1 Month
LIBOR is 0.19% and the WSJ Prime Rate is 3.25%. All commercial banks will include an additional rate of interest in addition to the base rate. The real world impact is that these index rates are mathematically unlikely to go any lower. The current interest rate climate presents borrowers with a once in a generation opportunity. 

Bryan Tuk is a shareholder at Fitzpatrick Lentz & Bubba, PC in Center Valley, PA and serves on the Board of Directors of the Upper Bucks Chamber of Commerce. Bryan’s practice is concentrated in banking law and he represents both borrowers and lenders in commercial loan transactions. You can reach Bryan at or follow him on Twitter  @bryantuk.