Some companies change lenders to raise additional working capital or to borrow at lower rates of interest but refinancing is primarily driven by a breakdown in the relationship between the lender and borrower.
Whilst an existing lender may have issues/concerns it doesn’t mean to say that an alternative financier would not be excited about the prospect of financing a company.
Some companies ease into new funding relationships but others, where the existing lenders concerns are real, may struggle.
Therefore, before embarking on a refinancing exercise, management really need to take a good hard look at their business to identify any barriers to refinancing, with a view to breaking them down before going to market. This avoids damaging credibility with potential financiers.
Key considerations before going to market:-
Banks and asset based lenders value security. Management, again before the refinancing exercise begins, need to seriously consider whether the company’s assets plus future viability are likely to provide an alternative financier with sufficient comfort to advance the funds the company needs.
Often there is a gap between what a new lender can provide and what a company needs and in these instances an injection of cash or guarantees from directors, shareholders or other third parties will be required to ensure successful refinancing.
For more information visit refinanceyourbusiness.com