There is an old saying "You can't dig yourself out of a hole." This is indeed true as it relates to refinancing debt -- you can't borrow yourself out of debt.

But with interest rates as low as they are (the prime is at is lowest rate in four years), doesn't it make sense to refinance? The answer is maybe. After all, the cost of all or some of refinancing, closing, legal, origination fees, commitment fees and security deposits will increase the total of the original debt you now have.

So how do you know if refinancing is right for you? Well if one or more of the following applies, you should seriously examine refinancing:

1. You will cut your interest rate.

2. The percentage of interest rate deduction to realize savings depends largely on your loan amount.

3. You will consolidate loans to increase your cash flow.

4. You will restructure your loan to a better term.

5. Your balloon payment is due and payable.

6. You are looking for capital for new acquisitions.

Let's start by taking a look at number 2, consolidation. For example, your business has three outstanding loans in the total amount of $400,000:

** a $100,000 equipment loan with an interest rate of 10 percent and a 10 year term,

** a $200,000 real estate loan,

** a nine percent interest rate and a 15-year term and $100,000 line of credit, and

** a 9.75 percent interest rate and a 10-year term

Under this scenario, the total monthly payment will be $4,734.

Let us refinance these three loans by consolidating them into one $400,000 loan, and we will shoot for an 8.25 percent interest rate with a 25-year amortization. The monthly payment on that loan will be $3,156, which will give you $1,578 per month as additional positive cash flow or $18,936 annually.

A positive cash flow is the lifeblood of any business. A successful business will have a gross profit, a net operating profit and most importantly a positive cash flow after debt service.

It is also very probable that your business has taken on a different form since you originally took out financing. For example, you may have increased your production, acquired new assets or secured long-term contracts. Therefore the type of loan that you may now want, need and/or qualify for has changed. There are a number of loan programs that can be re-financed or consolidated:

Unsecured Loan

This is typically a high-risk loan geared towards well established business, with clear ability to repay demonstrated through a borrower's net worth, equity in assets, etc. This loan might be used to purchase new equipment to complete work on secured contracts.

Demand Loan

This loan provides a method of short-term money and is designed around a known source of funds for repayment, such as secured work contracts. The loan is typically interest only and can be called in at any point in time. An example of use would be to cover increased short-term payroll costs.

Term Loan

This loans has a specified maturity date, greater than one year, typically not more than seven. This is a very common loan and can be used for working capital, real estate, machinery and equipment. The amortization is typically based on the economic life of the asset being purchased.

Commercial Real Estate Loan

This loan is made for the purpose of construction and acquisition of commercial real estate. Term can vary, but it is common to have a 3-5 year term with a 25-year amortization. Terms can be longer, but the interest is usually re-set every 3-5 years.

Line of Credit

This is typically geared towards a borrower with strong assets and a very clear demonstration of ability to re-pay. It is typically interest only with a term of 3-10 years. However, lines of credit can established be for as long as the lending institution chooses.

Accounts Receivable and Inventory

This loan is similar to a line of credit, but the lender takes a preferred first security interest. This loan is typically for a growth situation.

Regardless of the type of loan you need or qualify for to refinance business loans, you must go through the same procedures as if you were applying for a new loan. A bank will grant loans on either an unsecured or a secured basis.

An unsecured loan is granted on the company's credit and the strength of its financial statements. A secured loan requires a pledge of some or all of the assets of the company as collateral for the loan. In some cases, the owner must also give a personal guarantee or provide what is known as additional outside collateral, which could consist of a separate piece of property or other assets that are unrelated to the business.

In addition, the lender may look for compensating balances requiring the company to maintain a specific amount of money in an interest-bearing bank account and/or requiring the company to set up an operating checking account. The fact that you are consolidating loans may impose some financial restrictions on the proceeds of the new loan in order to be sure that the funds advanced are being used as intended. It is also not uncommon for a loan covenant to state that your company cannot pay dividends or repay loans to stockholders.

Although this process may seem involved and drawn out, it really is not. A good loan officer can make an expeditious assessment of your needs, guide you through the process and do most of the work for you. Whether it is a consolidation of debt to help your cash flow, a balloon payment due in the next six to eight months, or you just want to get a better rate, now is the time to look for refinancing with the interest rates as low as they are.

See your own banker and shop around. The terms and conditions for a business loan can vary widely from one lender to another. Remember that a well-versed mortgage broker can help you secure the best loan by presenting your request to a number of sources, thereby getting you the best deal. So, if refinancing makes sense to you, now is the time to act.

Jim McCormack is the head of commercial and small business loans at Sunshine Mortgage. He has over 25 years experience in all facets of the lending and commercial real-estate industry.