Financial institutions will carefully assess the risk of dealing with you before suggesting business refinancing options. Before you venture out and choose your lender for business refinancing options, be sure you clearly understand their expectations.
By: Phoenix Lee/
A strong management team
Any financial institution will want to verify that your company is well managed. Being profitable is one thing, but ensuring that you have the team in place to sustain growth is another. Start by demonstrating that your team members are competent and well-qualified to do the job.
Before seeking business refinancing options, it would help to prove your successful track record by communicating past achievements and the soundness of your plans.
Comprehensive financial strategy
If you have a cash-flow problem, you need to show how you plan to avoid a recurrence of this situation. Present conservative financial forecasts to include different scenarios, i.e., best-case and worst-case. Be sure to clearly communicate how well you understand your financial needs and the factors affecting your business success.
An important part before seeking business refinancing options is to understand how your level of risk is determined by assessing basic financial concepts, such as working capital, collateral and balance sheet.
Keep in mind that forecasting can be a complex task. It may help to rely on financial specialists to help you develop an effective business plan.
Proactive growth strategy
You need to demonstrate that you understand the risks and opportunities for your company. Your strategy is a result of looking closely at internal resources, the market, the economy, competitors, marketing and distribution channels and demographics.
A clear restructuring plan
If you are dealing with temporary difficulties, you should provide a restructuring plan. More detailed than a financial analysis, it includes measures to rectify an unprofitable position. The plan can present business refinancing options as one way to re-establish positive working capital by improving the terms and conditions of your current loans. Restructuring can include the sale of non-essential assets and inventory, which may generate additional one-time revenue.
A restructuring plan performs the same function as a business plan and must therefore serve as a guide for continuing operations. Like a financial forecast, it will be more convincing if it contains input from outside consultants who can help you with what can be a complex process.
Proof that you can repay
To obtain financing, you must prove your repayment ability, particularly if your company is in difficulty. Your earnings forecast should be conservative to avoid giving the lender any cause for concern. Before any new loan is approved, the financial institution will double-check your business credit and capacity.
Your chances of obtaining business refinancing are greater if you have:
- good credit history by always fulfilling the repayment conditions on your previous loans,
- credible financial forecast. and
- an honest and courteous relationship with your account manager.
If you do feel that the debt you have might be a problem, here are a few tips for improving the situation:
- Determine how much debt you have, and put together a plan for repaying it. If you’re currently paying the minimum amount required on your loans, stop doing so, and pay the maximum you’re able to. If you pay the minimum, it will take you 20-40 years to pay off the balance, meaning you’ll pay more than five times the actual debt in interest.
- If you have multiple loans, pay off the ones with the highest interest rates first.
- Consider refinancing to a loan that offers a lower interest rate.
- If you’re a homeowner, consider a home equity loan. The rate will usually be significantly lower than that of a personal loans, and the interest on these loans is generally tax deductible.
- Avoid luxuries, impulse buying, and any unnecessary spending.
- Keep track of your expenses so you can determine where your money is going and keep a tight lid on expenditures that are higher than they need to be.
- Limit your credit usage to the bare necessities. If the situation is dire, try to stop using your credit cards entirely.
Before enquiring on refinancing options, you will need to gather key information and required business documents to support your application. The requirements will vary greatly depending on the type and amount of credit, from basic information for a credit card to full financials for a major term loan.
When considering if refinancing makes sense, it is important to note that interest rates and points are inversely related. Basically the greater the points paid at closing, the lower the interest rate: paying points and fees essentially means you are buying the interest rate down.
Refinancing makes sense if you can improve your rate at no cost. If your mortgage is large enough to qualify for such a loan and you are not too far into your current loan term, this could be a no brainer for you if you are reducing your rate and (even better) your loan term as well.
Your home is not a cash register and should never be treated as such, particularly for frivolous consumer purchases. However there are many good uses for home equity, such examples include making home improvements and funding education expenses. It may make sense to use your home equity to fund big ticket acquisitions such as durable goods like gold which may not be tax deductible purchases without using your home as the financing vehicle.
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