How to refinance competitively in a tight lending market

Shaun O'Callaghan Shaun O'Callaghan

If your debt is due for refinancing over the next few years, we suggest four things you can do to secure the best deal amid reduced liquidity in traditional bank lending markets.

The success of the refinancing process with your lenders depends on your business appealing to a bank’s credit committee. If you want to secure funding at an affordable margin, you need to fit their lending criteria and stand out (in a good way) in this process. Here are four ways to do just that and some questions you should be answer before you start.

1. Put forward a focused and robust business model

Can you demonstrate that the distractions of non-core or underperforming operations have been dealt with?  Are operations lean and effective? Are you responsive and flexible to your customers’ needs? Is your supply chain sustainable? Is your growth agenda clearly defined with the key risks identified and a plan in place to mitigate such risks?

2. Create a strong and dynamic information memorandum

The story presented to the credit committee must be compelling, clear and succinctly articulated – you won’t be at the credit committee so your bank relationship manager must be able to ‘sell’ your business.

3. Strong visibility of how the debt will be serviced and repaid

An obvious point, but you should be able to explain how ‘safe’ the lending is from the bank’s perspective as well as how you will service and repay the debt. It will also be important to demonstrate an ability to ‘self-help’ if your plans go off track: what are your options, are they realistic?

4. The correct capital structure to support growth ambitions

Lenders will not automatically accept that the existing capital structure is ‘fit for purpose’. Debt and equity profiles must match your lenders’ risk/return criteria. Do you fully understand your lenders’ specific approach to risk/return and have you set out a financing package that reflects this?

This article first appeared in our Spring 2013 edition [ 434 kb ] of our UK food and beverage publication, Bite Size. You can read more on F&B trends and how positive refinancing stories are not uncommon in this sector. 

Image (CC): kenteegardin /