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26 September 2019 | Commercial Finance

Can refinancing benefit you and your business?

Refinancing is an ever-popular way of releasing cash from your business. Over the last five years the amount of refinancing deals we have carried out has increased by 57%, so we looked at the options available to operators, and what’s best for you.

Expansion/Purchase of new business

Many people look to realise equity from within a freehold business in order to create a “deposit” towards an acquisition or development project. A typical example is the seasoned operator who has owned a business or property for several years who has low gearing. By refinancing, it’s often possible to create the 30-40% deposit required for a new purchase, with the balance of the debt being supported by the new property – effectively raising 100% funding for the acquisition.
Similarly, some lenders will happily rely on the proven cashflow from the current business to support the debt linked to the target business/property. This gives operators the opportunity to take on a start-up or turnaround project (subject to cross collateralised security and meeting debt servicing cover covenants).

Moving Banks for a 'better deal'

Prior to 2008, it was commonplace for business and property owners to have one long-term relationship with a long serving bank manager which encouraged loyalty. Then it all changed…
Post financial crisis, the market was shaken up somewhat and the high street banks changed their approach to lending, imposing restrictions, new policies and some sectors became taboo. This led to the emergence of alternative lenders, challenger banks and specialist debt funds, all being able to offer borrowers new options. Over the last decade, these lenders have become well established and have proven to be popular with borrowers. One of the trickiest tasks today is how to navigate the debt market as it can be a minefield.
Some lenders will offer long-term interest only loans (typically up to five years), where others will potentially offer a higher LTV at a premium (some will consider both). In short, there are a lot of opportunities to consider if you wish to refresh your current deal. A specialist mortgage broker can be key to help unlock this potential and offer advice and guidance on ‘who’s doing what’.

Cash Buyers

Cash rich buyers looking to expand will often table a ‘cash bid’ with the attractive ability to do a deal fast. This can in some instances be more attractive than a higher bid which is dependent on finance having to be raised.
Most cash buyers will refinance after completion and often start this process once the sale is agreed, so that their cash is only tied up for a relatively short period of time.
Often, buyers will use bridging finance to facilitate a quick acquisition, typically on an interest-only basis with higher interest rates. Bridging finance is then usually refinanced with senior term debt, either immediately following completion or, in turn-around and development situations, once the business is generating sufficient profit to service a term loan.

This blog article was written by Chris Field, director of Christie Finance who works in the Corporate section from Head Office in London, to discuss this article or any details of coroporate finance, please contact him on 020 7227 0774 or chris.field@christiefinance.com

To find out more about refinancing your business, contact your local Finance Broker at Christie Finance. https://www.christiefinance.com/contact/team-directory/