Business Refinancing

Thinking of Business Refinancing? What Are The Options?

The basis of business refinancing, or business debt refinancing, is the conversion of original debt, including outstanding or overdue amounts, into a new debt instrument. By paying off the current debt obligations with the new debt instrument, businesses can consolidate their debt and obtain better interest rates.

It is, for instance, possible to take assets which may have been purchased in the previous two years and re-finance them to enable the cash released to be used in other parts of the business. If you have a sizable order that cannot be financed, but for which a sale has been agreed, it is possible to arrange for the purchase price to be funded and secured against the customer’s promise to pay. This is called trade finance, and is just one aspect of business refinancing.

It is also possible to have stock finance, where stock held has money advanced against it, either on a one-off or a revolving basis. As a result of the Enterprise Act, and the government now having given up its rights to preferential status, the stock financing option is now much more of an option that lenders are willing to consider.

Factoring is a well known type of business refinancing that can be used to realise the potential of a debtor ledger. It releases about 85% of the ledger, and the costs range from 2-3% of the ledger as a service charge, whilst the costs of funds are generally 2-4% over base. There is much competition in the marketplace and so these costs may come under pressure to fall.

Invoice discounting is similar in that the charges are similar in style, but that collection of the outstanding debt remains with the company. For this reason it is often the preserve of larger and more stable companies. The Small Firms Loan Guarantee Scheme enables sums to be borrowed for between 2 and 10 years, and for up to 85% of the loan sought to be guaranteed. A service charge or about 1.5% of the amount outstanding needs to be paid each year.

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