Loans are an important, sometimes necessary, part of small business management. However, there could be instances where the terms and conditions of your loan are not favourable for your current and future financial planning. This calls for debt restructuring which means changing the terms or method of debt payments through restructuring your borrowings and re-negotiating payment arrangements.
How can you maximise your refinancing deals? Check out these finance planning and restructuring best practices before considering your loan options:
Assess current loan deals and what does and doesn’t work anymore.
If you are not confident that your current lending facility can handle your planned changes, review the deals you currently have in place and assess what can be improved with your prospective lending facility. Consider these questions before proceeding to the next step:
- What are the issues that don’t work anymore in your SLA?
- In what ways are they not resolvable?
- Did your current facility handle and comply with the terms? How did it understand your banking needs and business history?
- In what ways can your prospective facility handle your loans better?
Cover your financial bases by knowing the options and implications.
Reviewing your business plan and current debt arrangements can save you a great deal of money and protect you from legal liabilities. Check for clauses in your SLAs like exit fees charged by your current lending facility should you terminate the loan before maturity. Those fees could offset your current profit and future interest savings.
Another part of your SLA you should focus on is determining which parts of your business operations are most impacted by your current loan deals. Highlight these areas and make sure the new lending facility addresses them.
It’s also important to discuss with your trusted financial adviser how to get maximum benefit from any prospective new lending facility.
Weigh the pros and cons through a thorough cost-benefit analysis.
Doing cost-benefit analysis means evaluating expected expenses and revenues if the loan refinancing deals with another facility goes ahead. Aside from researching the benefits of transferring to your prospective lending institution, make sure they’re in alignment with the reasons for your loan restructuring, such as an increase in debt finance, security offerings and consolidating cash flow savings.
Draft your proposal in detail down to the last letter.
Don’t shake hands with your new lending facility just yet. Draft your loan proposal carefully so that it covers all the points mentioned above. Every point in your proposal has the potential to either increase or decrease your asset valuations, therefore affecting the maximum loan amount on offer.
Lastly, it would very practical and advisable to discuss your debt restructuring and proposal with a trusted financial advisor to iron out any kinks in your financial deals; consider them to be your second pair of eyes to make your proposal an offer no lending institution can resist.
Cutcher & Neale’s myCEO Service aims to drive all aspects of a business towards achieving their vision through an internationally recognised systematic process. If you need help with your debt restructuring and adjusting your financial planning, contact us and let’s discuss your loan restructuring options.