Debt refinancing through private credit — replacing an existing high-cost or poorly structured loan with a better facility — has become the third largest use case in India's private credit market after new expansion capital and acquisition financing. The EY India Private Credit Report H1 2026 specifically identifies refinancing as one of the three primary drivers of sustained private credit activity. For businesses carrying expensive legacy debt — high-cost working capital loans, overdraft facilities running at 13-16% with restrictive covenants, or term loans from distressed situations that were priced at premium rates — private credit refinancing can reduce annual interest costs by 200-500 basis points and improve the debt structure significantly.
Understanding when refinancing makes economic sense, what the process involves, and what to prepare before approaching a refinancing lender is the starting point.
When refinancing makes economic sense
Refinancing makes sense when the economic benefit — the present value of interest savings over the remaining loan tenure — exceeds the cost of refinancing, including prepayment penalties on the existing loan and the transaction costs of the new facility.
The calculation is straightforward. A ₹50 crore term loan at 14% per annum costs ₹7 crore in annual interest. Refinancing at 10.5% reduces annual interest to ₹5.25 crore — saving ₹1.75 crore per year. If the remaining tenure is 4 years, the gross saving is ₹7 crore. If the prepayment penalty on the existing loan is 2% of outstanding (₹1 crore) and the transaction costs of the new facility — arrangement fee, legal costs, stamp duty on security creation — are ₹75 lakh, the net saving over the remaining tenure is approximately ₹5.25 crore. That is a refinancing that makes clear economic sense.
Where refinancing is often more nuanced is the structural improvement beyond rate reduction. Many mid-market businesses carry debt that was structured in a period of financial stress — with covenants that constrain business decisions, with security packages that limit their ability to raise additional capital, or with repayment schedules that force aggressive cash outflows at the wrong point in the business cycle. Refinancing can reset these structural constraints even if the rate improvement alone does not fully justify the transaction costs.
The four situations most commonly refinanced through private credit
High-cost NBFC debt from difficult periods. Businesses that borrowed from NBFCs or private lenders during COVID-related stress (2020-2022) often carry rates of 14-18% that reflected the risk environment at the time. As business performance has recovered, their credit profile no longer justifies these rates. Private credit at 11-13% is available for businesses with strong current financials, even if the original borrowing was made under stress.
Legacy overdraft facilities used as working capital term debt. Banks' overdraft and CC facilities are designed for short-term working capital. When businesses use them as de facto term debt — carrying balances for 2-3 years without reducing the principal — they pay overdraft rates (13-16%) on what is effectively term debt that should cost 9-11%. Refinancing into a structured term loan or NCD is both cheaper and more appropriately structured for the actual use.
Multiple small loans consolidated into one facility. Businesses with 4-6 separate loan facilities — from multiple banks and NBFCs — often carry significant administrative overhead, scattered security packages, and covenants that constrain business decisions. Consolidating into a single private credit facility simplifies the capital structure, potentially improves the blended rate, and often frees up security for additional borrowing capacity.
Acquisition financing refinanced as the asset performs. Businesses that financed an acquisition through expensive structured debt at the time of purchase, when the combined entity's track record was short, can often refinance 2-3 years later once the combined entity has demonstrated its performance, at significantly better rates that reflect the now-established credit history.
What the refinancing process involves
Step 1 — Existing debt audit. The advisor conducts a complete audit of the existing liability structure: every facility, lender, outstanding amount, current rate, remaining tenure, repayment schedule, security created, and prepayment penalty terms. This is frequently the first time a business has seen all its debt obligations in one place. It is always an informative exercise.
Step 2 — Refinancing feasibility analysis. Based on the liability audit, the advisor calculates the economics of refinancing — rate saving, structural improvements, and total transaction cost. This determines whether refinancing makes economic sense and at what target rate the transaction is worthwhile.
Step 3 — Credit package preparation. The borrower prepares a CIM for the refinancing — demonstrating current financial performance, current liability structure, the proposed new facility, and the economic case for the refinancing.
Step 4 — Lender identification and placement. Private credit lenders are approached with the refinancing proposal. Because the borrower has a demonstrated credit history (unlike a first-time borrower), the due diligence timeline can be shorter if the documentation of existing business performance is complete.
Step 5 — Security transition. The new lender's security is created before the existing lender releases their charge. This requires coordination between the existing lender (who must agree to a window for charge release), the new lender (who takes the security simultaneously), and the debenture trustee or legal representatives. The security transition is the most operationally complex part of any refinancing — getting it wrong creates a period where neither lender has valid security.
Eone Capital advises on and arranges debt refinancing for businesses with outstanding facilities of ₹30 crore and above.
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