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Refinance

Refinance

Refinancing is the process of obtaining a new debt facility to replace an existing one. This involves paying off the current facility with the proceeds from the new one, which typically has different terms, such as a different interest rate, duration, or amount.

The objective of refinancing is not limited to but can include, obtaining a lower interest rate, adjusting the length of the loan term, or changing the type of loan.

Who is it suitable for?

Refinancing can be suitable for a variety of situations, but its appropriateness largely depends on specific financial goals, current financial health, and market conditions. Here are some scenarios where refinancing might be suitable:

  • Understand current terms: Understand all the current facilities, terms, security, collateral, current repayment schedule and the intangible benefits/otherwise (eg customer service) of current providers.
  • Understand the penalties: Facilities may have an early repayment penalty. If so, you must understand these and once understood, work out is there optimum timing for a refinance.
  • Work out what you need: Refinancing is not just about replacing old debt with new debt for better terms, finance facilities must align with your strategic objectives.
  • Engage existing and new lenders: It is always worth engaging with the existing lender as well as potential new lenders to get terms on the table that achieve your goals.
  • Offers and Legals: Once you have agreed to move forward with lender(s), you will need to complete due diligence and complete legals.
  • Funding: The new lender will repay your existing provider directly (most of the time) and any additional funds will come to you.

The deal process

Target identification & engagement

Identify your target acquisition based on strategic objectives & engage them to ascertain if there is a fit.

Understand funding requirement

If there is a fit, any funding gap will need to be identified & a strategy put in place to fund it.

Negotiation, letter of intent & exclusivity

Once funding is feasible, terms must be negotiated with the vendor. Upon agreeing to a letter of intent, a period of 6 weeks to 6 months follows to finalise the deal.

Due diligence & legals

Ensuring thorough vetting and alignment of interests with these partners will greatly enhance the efficiency and effectiveness of the due diligence process.

Funding in place

Alongside the due diligence, the funding facility deal will be being set up & you will need this in place and ready to go for completion.

Deal closing & integration beginning

As the deal completes, the corks pop & the fun begins...

Items to consider & FAQs

Items to consider:
Refinancing for better terms is not always the right thing to do and taking into account more than just cost is, we think, important to making the right decision.

What is your relationship like with your current lender?

If you have a good relationship, speak to your current lender(s). WHy is it not working for you and is there anything they can do to help. Often the perfect refinance is found on the doorstep!

What is the most important thing to you about a facility?

You need to consider what it is that you deem important about a facility, is it purely the capital, or is it the debt structure, the cost, the repayment structure, the flexibility, the security or simply the ability to be late on a payment and pick up the phone to a decision maker and get some grace. For lots of businesses the most important thing is not always the most obvious and we always advise to think about the whole picture.

How long does it take to refinance?

It will entirely depend on size, complexity and type of refinance. Usually once the deal is moving and both sides are aware of what is going on, refinances move more swiftly than stand alone fresh fundraises. 

When is optimum to refinance?

Ideally when you have no repayment penalties and the ability to raise more capital at a lower rate! However most refinances come because of difficult terms or structures with incumbent lenders or a consolidation, so our advice would always be to get ahead of it - change to the optimum facility when times are good rather than waiting for the existing debt stack setup to cause issues.

What if I am defaulting/struggling with my current debt burden?

Exploring a refinance is something to get ahead of - if you are defaulting or struggling, then seeking immediate change is probably a good idea. Lenders will care if you are defaulting, but if you can demonstrate that changing terms will mean your situation changes, then some lenders will buy into the narrative.

Are there costs involved with setting up a facility?

As with anything, yes, although the good news about refinances is that incoming lenders tend to keep costs to an absolute minimum in order to win the business.

Can you give one piece of free advice?

Yes - make sure that you consider the relationship, the flexibility, the way of working and the systems of the current lender as well as the cost. Changing lender solely for better terms might not be the right decision. 

Here to help - Get in touch with our team

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