Refinancing solutions can help a company find the flexibility it needs under a broad variety of circumstances and there are a wide range of specialist solutions now available in this context.
It’s important to seek out solutions that meet your needs precisely as a business and to be sure of the reasoning behind your decisions as you approach the refinancing process. However, with the right support and guidance, there’s every reason to expect that there will be a refinancing solution available that is entirely appropriate to your situation.
Every company is different but often the reason why a business would want to look into refinancing a business loan will be because existing terms are limiting flexibility.
Every company needs a measure of financial flexibility and access to cash on short notice. Ideally, cash would be available to a company consistently on the basis of a healthy balance between income and outgoings. However, it is very common for a business to find its cash flows squeezed at certain points in time and for a lack of immediate access to cash to cause problems at an operational level.
Refinancing a company under these circumstances is not to be taken lightly because it can potentially result in additional charges and fees to be paid but it can sometimes be necessary or preferable. As ever, directors need to weigh the advantages against the downsides and decide whether pursuing a refinancing solution would be in the longer-term interests of their business.
There are instances in which refinancing a line of credit or a business loan can actually result in worthwhile cost savings for a company. This is possible because one creditor might be able to offer a better deal than another and negotiations can lead to a reduction in expenses for the company taking on the debts.
In these situation it is crucially important to understand what kind of refinancing options are available and how to negotiate the best possible terms whatever the scenario. But there are circumstances in which refinancing is very much about cost saving and long term planning.
Often what a company is keen to secure as they investigate refinancing solutions is a more favourable working capital balance, which then leads to a greater degree of financial flexibility.
Working capital is essentially whatever is left after the value of a company’s liabilities have been subtracted from its assets. So it is the amounts of money that are available to a business on a day to day basis. Refinancing loans can help add to this availability in ways that can make companies more agile and better able to seize opportunities that emerge in their industry.
So refinancing might put a business in a position to take on additional staff to service a new contract or to invest in new equipment that makes a crucial difference to output potential. Alternatively, it could be that refinancing loans presents a particular business with a chance to ensure that its debts are less onerous and difficult to service, which could be equally crucial to its longer term prospects.
For some companies, cash flow issues can be a cause of concern on a consistent basis but for others these problems might be a rare occurrence. So it could be that the services of refinancing lenders aren’t required often but only at moments of acute distress, which is where revolving credit facilities can help a company manage its cash flows more effectively and in important ways.
There are solutions available that enable a company to draw down and repay these facilities in line with their needs, which are allowed to and expected to vary considerably at different points in time. Here again, flexibility is the underlying benefit being offered and one which can often prove invaluable for SMEs in particular.
In many ways, refinancing is about giving a company’s directors a greater capacity to look to the future with confidence. It’s vital to read all and any refinancing guidelines as relevant and to seek out advice from independent experts before taking up an offer and pursuing a refinancing solution but they can bring valuable relief and open up new horizons in a very wide variety of situations. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 72 UK offices or a place of your convenience.
Author: Keith Tully (Partner)
21st February 2019
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