Raising Finance

Top three things SMEs should consider when refinancing

5 min read

16 October 2017

Refinancing seems like an unattractive hurdle – a mass of paperwork and fees so large that it negates the potential benefit of a more attractive deal. Nevertheless, it’s often the key to improved growth.

A catalyst for change and expansion, that’s what refinancing really is. It’s a chance to reassess the needs of the business and get access to the funding required to achieve goals.

All too often, it’s easy to get locked in to a punitive funding arrangement. You sign the initial contract but then your circumstances change. You need more working capital to support a new project or a longer payoff period that allows you to reduce your monthly outgoings. Suddenly, you’re refused a discussion about your terms and conditions.

Many bosses who find their current finance arrangement is no longer working for them will face an uphill struggle to fix the issue. Buyout fees, early exit penalties and restrictive terms and conditions are just some of the issues faced. That’s bad for business.

Too often taking on more debt is seen as a warning sign that something wrong. This attitude inhibits growth. Debt is often a sign of growth and provides the injection of capital that organisations need to expand.

So how should you approach refinancing?

(1) Be bold

Despite the work involved, boldness is often rewarded when it comes to refinancing. There’s the chance to consolidate debts into one place, generate more working capital and renegotiate some of the specific terms of your contract, for example, the need for personal guarantees.

Taking the first step is the hardest part of refinancing and it’s a decision that should be given serious thought. Treat it as a chance to regain control of your businesses’ financial trajectory. Choose providers that allow you to talk through the business and your requirements.

Be prepared to present your business plan, share details on your business and show you have or reasonably will have sufficient revenue to support your vision. If refinancing feels like the best decision to support your growth then be bold and partner with finance companies that will be hands-on, flexible and able to act quickly to offer you the funds.

(2) Be yourself

Life as a small business is fast paced. You probably know how that contradiction usually plays out. A major new deal or project lands on the table, with the potential to push the company to the next level of profit and success. You turn to your backers to request the funds you need to land that contract or build that next site, and are met with an eight-month approval process, which may or may not end in a flat “no”.

Refinancing can allow you to enter into partnership with a finance provider that will make room for changes in your contract and allow an ongoing review of your requirements. By moving away from institutional money, you can help to bring the focus back onto the viability of your business rather than its adherence to a set of tick-boxes. That means having a more constructive conversation about adding extra funding to your plan or renegotiating payment terms.

(3) Consider alternative options

It’s important to review all the options when considering refinancing. Technology has benefited many areas. It’s advanced day-to-day banking, news, retail, travel and healthcare. The list goes on. However, it hasn’t yet fully extended to business borrowing.

New forms of technology in alternative finance can change business borrowing for the better making access to funding as easier and simpler. Don’t just assume your usual high-street bank is the best bet. Whether you go with a challenger bank, asset finance or peer-to-peer lender, carefully consider which type of finance provider will offer greater flexibility and can grow as you do.

Take control of your own finances

The SME sector is the backbone of the British economy. Too many companies get strangled by limiting financial contracts before having chance to prove their mettle. There are a lot more options out there beyond the traditional finance providers so it’s important that high-growth, successful small businesses take back control and rethink how various finance options can support business growth.

Angus Dent is CEO of ArchOver

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