Tips for refinancing the debts of a company

Financing is a lever for the development of a company. It must always be based on the search for the best conditions and on the fact that its use generates a benefit that allows the return of the requested capital and the agreed interest without unbalancing the company’s balance sheet. Refinancing can become a handy tool when this balance is lost, and there is a risk of failing to meet the commitment acquired. Before facing any financing, an analysis must be made that covers the following points:

  • Return ability.
  • Financing terms according to the nature and accounting amortization of the asset.
  • Take into account the final cost of the operation
  • It allows financing the gap between payments and income from operations.
  • Get cash in times of treasury stress.
  • It helps to expand and modernize the company.

Favourable conditions to refinance debt

If the company has a risk of non-compliance, current or potential, with the committed payments or verifies that its financial expenses are higher than market prices and believes that it can obtain more favourable conditions, it can refinance. 

It must be taken into account that refinancing is not exempt from expenses and uncertainty since new loan contracts must be managed, and financial institutions will review their conditions in this process. It can be done with any financial institution. However, doing it with the same one with which you usually work has advantages: Crestridge Funding knows the credit history and the evolution of the business.

On many occasions, it is enough to modify the expiration terms to reduce the monthly payment; in others, a significant restructuring is necessary:

  • Justify the need for refinancing: Showing that the business is viable and even more profitable after this process.
  • Refrain from borrowing more: It is essential that while you are negotiating, you do not borrow more money or if it is strictly necessary, the entity with which you are negotiating knows it.
  • Have greater control of liabilities: In addition to financial debts, there may be a problem with commercial debts (a set of loans and credits that a company has at a given time). It is necessary to ensure that their payments are okay with the treasury situation and the company’s overall situation.
  • Analyze the conditions well: Adapting them in interest rates and terms to the company’s possibilities. To avoid an increase in financial expenses, the installments to be paid must be low enough to ensure payment but not so long that interest triggers.
  • Settle some debts: In many cases, old debts are amortized to convert into new loans. In these cases, leaving a small cash surplus for more immediate expenses is advisable.

With all these steps, an agreement will be reached between the two parties in which their conditions must be reviewed. That is why it is convenient to be diligent when providing documentation. If a default has occurred during the refinancing process, it is essential to agree on terms such as a wait to settle the debt when the agreement is reached. In Americorthere is a revision of the guarantees, sometimes necessary to obtain an external one.

Other ways to refinance

In addition to external financing, external resources that you have to return own resources can be sought, allowing the entry of new investors into the capital of the company. One of the benefits is that they do not generate interest and do not require repayment, or at least not in the short term.

Among these figures are the ‘ business angels ‘, private investors who focus mainly on newly created companies with growth potential but high risk. This figure enters the company’s capital and contributes money and knowledge.

Conclusion: In this sense, but with larger companies and even more extensive experience, venture capital funds act that remain in the company’s capital for a few years to sell their participation later, looking for a profit. Although these options are growing, they continue to be a minority and are closely linked to new technologies. That is why a refinancing that balances the benefits of loans to grow a business and the ability to repay is so essential.