Businesses that find themselves under pressure to pay their debts will often turn to refinancing to correct their situation. Refinancing allows businesses to reconsolidate their debt in a way that’s easier for them to handle, as well as providing them with more movement of their working capital. It can also reveal new sources of financial support, as well as access to financial expertise.
Refinancing your business can have several benefits.
1) Less Money Being Paid On Servicing Debts
The lower interest rate gained by refinancing can mean that less of your money goes to servicing your debts. You can also choose to reduce the size of repayments and pay over a longer period of time.
2) Simplified Debt Repayment
Refinancing can make repaying multiple debts simpler. Having only a single payment and one contact frees up time for you to concentrate on running your business’s day-to-day operations and improving your sales, instead of having to confer with multiple creditors.
3) Avoidance Of More Serious Conditions
A lower single monthly payment will allow you to have more working capital, therefore, refinancing can reduce your risk of becoming insolvent or receiving a statutory demand, which can place your business in danger of closing.
Options For Refinancing
There are several options available to you if you choose to refinance your business.
A bank overdraft can provide you with the temporary increase in cash you require to overcome a short-term crisis. Some banks allow you to convert an overdraft into a long-term loan at a lower interest rate if the amount you need is significant.
Bank overdrafts can be a very successful means of refinancing your debts. However, you need to ensure that you’ve provided sufficient information to the bank and you have a realistic prospect of clearing the overdraft without accruing more debt.
Enterprise Finance Guarantee (EFG)
The British Business Bank’s EFG facilitates business loans to smaller businesses that are viable but unable to obtain finance from their lender due to having insufficient security to meet the lender’s requirements.
The EFG will provide the lender with a government-backed 75% guarantee against the outstanding facility balance, potentially changing a credit decision from a ‘no’ to a ‘yes’.
EFG guarantees loans to fund the future growth or expansion of a business, from £1,000 to £1.2million.
If you cannot get you help from the bank and your needs are too small to secure venture capital, then a business angel may be the solution. Business angels are wealthy individuals who provide finance and expertise in exchange for equity in your business. This option can provide your business with plenty of knowledge, as business angels often have a background in the industry and can help you plan and grow for the long-term.
Business angels may also provide loans on flexible terms that are easy on your company’s budget. They may even be able to provide you with future funding if you’ve chosen them carefully and build a positive relationship with them.
These days, crowdfunding is being used to raise money for all kinds of endeavours, even loans for business refinancing. For this option, you will need to ensure that you have an incredibly effective business pitch and lots of clear financial information so that funders can carefully consider investing.
Crowdfunding can get your business the capital it needs to continue operations. However, you will need to ensure you have your business plan ready, complete with forecasts for growth and a compelling pitch.
The above options only represent a fraction of what’s available to you when you need to refinance your business. Speaking with one of our professional insolvency advisors about solutions early on, can ensure you have plenty of time to choose the best one for your circumstances.