For some business owners, the thought of refinancing debt can feel like a defeat or last resort. The simple reality is that refinancing can be a life saver in the right situation; adding real cash back into the business monthly, instantly taking pressure of cashflow, and not to mention, personal stress for the owner. In most cases, stress in a business is around money – and lack of it.
A business can have cashflow stress due to drop in sales revenue, increased operating costs, and disruptive one-off events such as legal issues, customer insolvency, theft, business partner issues, spousal issues, and even a pandemic…the list goes on. People own and operate businesses and life happens to all of us.
HERE IS WHEN REFINANCING OFTEN DOES NOT MAKE SENSE:
- Sales are trending down, and you delay or refuse to adjust your cost base, including staff levels and unused equipment. A refinance lower payment will add some monthly relief but won’t fix the problem.
- Older equipment with high repairs and maintenance costs. Repairs cause huge cash management challenges, because they often can’t be financed, on top of the lost revenue from constant down time. First, consider selling or trading off high cost gear to finance newer, more reliable gear. The combination of lower repair costs and increased revenue from less downtime may be the solution you need.
- Poor accounting/booking. A business that has poor bookkeeping often gets into trouble because of how the books are managed causing tax arrears, penalties, fines on AP and slow collection of AR. A refinancing will provide a temporary fix, but without a solid bookkeeping strategy, the problem will come back.
HERE ARE COMMON SITUATIONS WHERE A REFINANCING DOES MAKE SENSE:
- Sales have dropped but stabilized and you’ve made tough decisions on staffing and overhead. The next place you get lift for available cash is refinancing. Lowering payments on your equipment will further bolster cashflow to strengthen the balance sheet and enable future growth.
- Bank Pain. Your bank is becoming more difficult to deal with, increased reporting requirements, decreasing lines, issuing breach of covenant notices, or cash calling in the loans (this happens even if you pay on time). A refinance solves this pain by getting the bank paid out, re-terming the debt in a facility that is non-demand, and the price is stable and does not require constant reporting.
- Partnership changes. Getting a partner out of the business may require cash you don’t have, or the bank isn’t prepared to offer. The exiting partner may also demand his or her name removed from all guarantees – something existing lenders aren’t as willing to provide. A refinancing with cash back can provide the capital needed while paying out the lenders who will not cooperate with amending their security.
- High Growth. If your sales are rapidly rising, costs probably aren’t far behind. Financing additional equipment can be easy; however, finding cash for operating may not be. Banks are typically not great partners in a business with frequent change either down or up. One way to access cash is by refinancing your fleet to reduce payments. Once the business stabilizes, the bank will begin to take an interest in increasing the operating lines.
There are many more situations where refinancing makes sense. The cost of structure of each one is as different as each deal. Our job is to work with the underwriters to ensure you get the best terms and structure to maximize your cash flow.
Want to know if you qualify and would benefit from a refinancing? Give us a call for a free consultation or follow this link for more information.