Should You Refinance Your Business Debt?

For many business owners, borrowing happens at different stages of a company’s growth.

You might have taken a short-term loan to manage cash flow, used asset finance to purchase equipment, or taken additional funding to support a period of growth. Over time, this can leave a business with several different facilities and monthly repayments.

As the business changes, it can be worth taking a step back and asking whether your existing finance still works for you.

What is business debt refinancing?

Business debt refinancing involves replacing some or all of your existing borrowing with a new finance facility.

The aim isn't necessarily to borrow more. It can be about restructuring existing debt into a facility that is better suited to the business's current circumstances.

Depending on the business and the available options, refinancing could potentially help consolidate multiple facilities, manage monthly repayments or release additional working capital.

1. Your monthly repayments are putting pressure on cash flow

A business can be profitable and still experience pressure from its monthly debt commitments.

If you've taken several short-term facilities over time, the combined repayments can become a significant outgoing each month.

Refinancing may provide an opportunity to restructure those commitments and create a repayment profile that better fits your current cash flow.

2. You have multiple finance facilities

Managing several loans with different repayment dates, terms and costs can make cash flow more difficult to manage.

In some circumstances, refinancing can allow businesses to consolidate existing borrowing into a single facility.

This can simplify repayments and make monthly cash flow easier to understand.

However, consolidation isn't automatically the right solution. The overall cost and structure of the new facility should always be considered alongside the potential benefits.

3. You need additional working capital

Refinancing doesn't necessarily have to mean simply replacing existing debt.

Depending on the circumstances, a business may be able to refinance existing borrowing while also raising additional funds.

That additional capital could potentially be used for stock, recruitment, new premises, marketing, expansion or other working-capital requirements.

For a growing business, restructuring existing debt and releasing additional working capital can sometimes form part of the same funding requirement.

4. Your current finance no longer matches your business

Businesses evolve.

A facility that made sense when the business was smaller may not necessarily be the most appropriate structure as the company grows.

For example, a business may have originally used short-term funding to solve an immediate cash-flow requirement, but now have a more established trading history and different funding needs.

Reviewing your finance as the business develops can help ensure your borrowing continues to support your plans rather than restrict them.

5. You want to understand your options before taking on more debt

Refinancing isn't automatically the right answer.

Before making a decision, it's important to look at the full picture rather than simply focusing on the headline interest rate.

Consider:

• The total cost of the new facility
• Monthly repayments
• The repayment term
• Any fees involved
• Whether security is required
• Early repayment costs on existing facilities
• Whether additional working capital is required
• How the new facility fits your expected cash flow

A lower monthly payment, for example, doesn't necessarily mean a lower overall cost if the new borrowing is spread over a significantly longer period.

When might refinancing make sense?

There isn't one set reason why a business should refinance.

It could be worth exploring if your business has multiple existing facilities, monthly repayments are becoming difficult to manage, your circumstances have changed, or you're looking to release additional working capital.

The important thing is to understand what you're trying to achieve before looking at the available finance.

Are you trying to reduce monthly pressure?

Consolidate existing borrowing?

Release additional capital?

Or simply find a funding structure that better reflects where the business is today?

The answer can help determine which type of finance is appropriate.

Reviewing your business finance

Business finance shouldn't necessarily be something you only think about when you need more money.

As your business grows and circumstances change, it can be useful to periodically review your existing borrowing and understand what options are available.

At Kingswear Financial, we work with UK SMEs to understand their existing finance, funding requirements and future plans. We can then explore suitable refinancing and additional funding options across our lender panel.