The main driver for refinancing comes from a break down in relations between a company and its lender. This is often referred to as lender fatigue or lender concern.
It is important to remember that just because your lenders have expressed concern does not mean that there won’t be other lenders out there interested in your refinancing opportunity.
To maximise your chances and to ensure the process runs smoothly, you will need to present a succinct refinancing business case for potential lenders.
This should include:
- The latest audited accounts and accurate management accounts.
- An integrated financial report that incorporates monthly balance sheets, profit and cash projections for a minimum of 12 months.
- A turnaround plan that articulates the reasons for underperformance and the steps to take the business from current performance to growth.
- Conservative, realistic and achievable projections.
A robust and complete business case will be looked more favourably upon by the challenging credit committees, who will also appreciate your plans to improve performance and avoid repeat lender fatigue. Lenders value security and will want to know what their exit route is if your turnaround doesn’t work.
The best advice before going to the market is that you run through the business case with your advisors who will be able to:
- Advise on whether you will have enough working capital to achieve your projections.
- Advise which lenders in the market are best suited for your refinancing opportunity.
- Introduce you to prospective financing partners. The fact that your advisors are making the introduction will give you more credibility than if you make the approach yourself.
Get these basics right and the refinancing process will be a challenging but rewarding one.
David Gilbert is a business restructuring partner and refinancing and rescue finance specialist at BDO, running the firm's www.refinanceyourbusiness.com project.