Refinancing is akin to consumers letting their utility contracts “roll” without thinking about tariffs, providers, cost reductions or carbon credentials each provider offers.
This analogy is still appropriate as utility prices have skyrocketed since the Russian invasion of Ukraine. This has caused a higher inflationary climate with recessionary storm clouds forming and business trying to forecast how long and deep the recession will be. In times of uncertainty, refinancing is a consideration for business in the same way as householders switching utility providers. This is due to the economic cycle of higher interest rates.
With inflation high, businesses achieve growth by a simple formula of investment. To have investment, however, you need to have money to invest. Businesses need to think smarter as to where the money is coming from. There is no magic money tree to shake and instead, businesses should look at their assets to see what can be leveraged to create cash for business investment. Even without assets, future profits also give this ability to “refinance”. Andy Oates (Head of Corporate, West Midlands, HSBC) said “as a bank, we are in the business of lending money, but we are much more than that. It is the support we bring to the local and national economy by ensuring that entrepreneurs can continue to do their day-job by creating opportunities and employment for all the stakeholders in their business, for which we are proud to be a part”.
Refinance can take many forms from traditional cash flow loans to more innovative forms of finance such as letters of credit from importers, revolving credit facilities, invoice discounting and stock loans. With this wide array of finance and lenders, it is important to consider what can be afforded without putting the business under undue pressure. Steve Harris (director of Central Finance being a commercial broker) said, “cash flow is the lifeblood of any SME, and what we do is make sure that blood continues to flow to all parts to ensure that business operates at potential at all times”.
As part of refinance, businesses should think about headroom when working with their accountants to ensure cash flows are robust to meet unexpected events.
Businesses should foster their relationship with their lenders and not treat their financers as a commodity to be used. Long-term relationships with brokers and lenders are invaluable as they cushion against the whims of commercial lenders’ appetites changing. Stuart Welch (Director of Commercial Banking, NatWest Group) said that “At NatWest, we pride ourselves on being a business bank that has intimate knowledge of our customers, fostering long-term relationships that help us to support SMEs and businesses through every stage of their growth journey”.
Do not overlook how the financial mix is made up as part of the refinance. With a multi-layer approach, you can take the best from different funders and dovetail it as a holistic business solution. The cherry on the cake is a grant paired up with refinance creating further opportunities for businesses to buy kit, take on employees, carry out development and better enable a business to meet its goals.
So you do not need to a conjurer to create a sensible refinancing opportunity for a business. Look at the business assets and the profitability of the business, then with the help of accountants and business brokers, businesses can find the right product, spreading the risk between lenders to generate further cash flow for investment and ultimately improved productivity and resilience.
