BUSINESS LOANS IN CANADA - HOW TO REFINANCE A BUSINESS
Business refinancing .. its a fact that business loans and debt refinance via commercial loans must be reexamined to ensure new or better financing is in the best interests of your current business position.
WHY DO COMPANIES CONSIDER BUSINESS DEBT RESTRUCTURING? THE BUSINESS LOAN REFINANCING PROCESS
Your company might be considering a reorganization of its debt obligations via corporate refinancing ; in some cases that might mean totally or partially replacing debt or other times a full restructuring of the business. Naturally, the main reason to consider such an effort is to improve the overall financial position and capital structure of the company. It might mean better overall interest payments around the rate and cost of funds.
Rates have consistently dropped and remained low so companies doing well can certainly benefit from the low rate environment and save a business money in monthly payments/loan repayments in loan refinancing for any existing loans or existing debts of another kind.
REASONS TO REFINANCE BUSINESS DEBT - DETERMINING IF REFINANCING IS A SMART BUSINESS MOVE
Leveraging the owned assets in your business can also provide significant collateral liquidity. This can be accomplished by a sale leaseback process for both leveraging assets in equipment and real estate commercial properties. Those funds can be used to pay down debt or put back into the company for projects around marketing and research and development with loan repayments that make sense under the leaseback cash flow repayment. Potential savings under a refinancing option for a leaseback can be significant.
Business owners should be reminded that investments in r&d capital tax credits can be financed for more working capital under a SR&ED Tax credit short-term loan to recover r&d costs as opposed to refinancing your business - A typical loan term for a Sred loan is 6-12 months.
Refinancing a premise you own via a commercial mortgage refinance is a classic business refinancing strategy, notwithstanding the fact these business assets are often held in a related company. In other cases, it might be ' credit-driven ' - allowing you to consider other more flexible financing options.
Credit history and the personal credit score of owners will also often play a role in the refinance process when it comes to debt consolidation. The ability to consolidate debt and the personal finance of owners are inextricably related. Personal assets of business owners are sometimes used as additional collateral for some forms of refinancing.
Suffice to say that in many cases these days, pandemics included, it's a case of fixing the business around any existing loan for a firm that might be exhibiting some sort of distress and a lowered overall business credit score. Emergency short term working capital loans, sometimes referred to as a merchant cash advance also can facilitate short term funding needs. These loans do are more expensive, and do not come at a lower interest rate but are easily accessible. Your annual revenue is a key factor in the size of these loans. This short-term loan is a term loan structure and the total loan is repayable over a 1-year term.
The ability to complete a small business loan refinancing successfully typically will deliver more cash and working capital to the business for daily operations and long term success. While it is not always about ' the rate ' in a new loan when it comes to the refinancing of debt it is safe to say that firms doing better do have the options of a refinance strategy that will allow a lower cost of funds. That typically can lead to more growth opportunities when restructured loans are well thought out and executed properly.
Naturally, most refinancing of existing loan opportunities also has different costs attached to the process, and it's important to consider those. Those refinancing costs for an existing business loan might include the fees of business advisors, lawyers, and accountants, that ultimate business triumvirate! In certain cases, certainly when including real estate in the mix up to date appraisals might be required, as well as early prepayment penalties being considered. Many businesses need to consider lending solutions from alternative lenders who these days abound in the Canadian business landscape these days - competing with banks and credit unions.
TIMING IS EVERYTHING IN CORPORATE RESTRUCTURING
At 7 Park Avenue Financial, our experience in working on restructuring and refinancing transactions has taught us that one ' cost ' of refinancing is the amount of time and management involvement in working through the whole process. It is certainly not unusual for a positive restructure to take at least a few months that might include the preparation of business plans, cash flow forecasts, lender negotiations, due diligence, and on it goes!
KEY POINT?
Allow time for the process of restructuring Loans The greatest cost of corporate debt restructuring is the time, effort, and money spent negotiating the terms with creditors, banks, vendors, and authorities. The process can take several months and entail multiple meetings. As we have noted, it's not always ' doom and gloom ' in the refinance process. Companies doing well might be facing strong growth challenges, or in some cases addressing seasonal or one-time large orders and contracts. In many situations, a company can avoid taking on long-term debt in the financing of large orders and contracts by considering purchase order financing and A/R financing solutions.
Leverage sales via those latter two solutions to avoid costly and time-consuming refinance, so the ability to proactively analyze your needs carefully is key. An examination of your financials with the help of your accountant or advisor should be able to pinpoint the right solution, and here cash flow forecasting is key. Certain external events might also lead to a refinance process - that could be an owner equity infusion or perhaps a large receipt of funds from, for example, a customer. An owner equity infusion, as we have referenced above has the effect of improving debt to worth ratios and making other refinancing more possible.
The ability to combine loans or extend terms can have a very positive effect on cash flow. While we have discussed many of the positive aspects of a business refinance there are numerous circumstances that may have placed a company in some level of distress. A formal or informal organization might be required, if only for the sake of keeping a company in business. It's at this time that careful thought and time must be given to negotiating with banks and other secured creditors.
The focus now becomes reducing debt, achieving an interest rate and cost of funds that a company can live with, and ensuring terms match the long term prospects of the company. Although rare in some cases certain creditors may be persuaded to forgive debt or take some sort of ownership or warrant position in the business. The ability to save a company from any sort of formal bankruptcy or receivership becomes the total focus of management and their advisor.
PREPARING THE TURNAROUND REFINANCING PLAN
Various problems precipitate a turnaround requirement, falling sales and negative cash flows and losses are near the top of the list. Therefore being able to pinpoint the key sources of the need for restructuring is critical. As you and your mgmt and advisor put forth the right turnaround it's essential to be able to provide key documents to interested or vested parties. Don't forget to take any origination fees and closing costs into account when refinancing your loan situation.
Key parts of your package should include: Mgmt analysis of the problem/solution Historical and interim financial statements Cash flow forecast/business plan Details on secured creditors/collateral held Aged Payables / Receivables Personal financials of shareholders/owners Having that type of package in place allows your restructuring to be viewed positively from a viewpoint of being prepared.
In certain cases your firm might be in the Special Loans section of your bank's restructuring unit; working with a bank through a forbearance agreement when your demand loan is called will often require the expertise of an experienced Canadian business financing advisor to put a brand new loan or financing in place. Changes will always occur in your business and owners and financial managers must evaluate the cash flow and debt position of the company. So what are some of those reasons that loans are refinanced, or a new financing structure is brought into the company?
In some cases certain gains in the value of assets of the business allow owners to take out equity, or in some cases totally ' cash out '. Current management might be focusing on a management buyout or some form of succession planning might be taking place when you redo or consolidate loans. Interest rates play a key factor in business refinancing - in a perfect world rates might have declined and allowed your business to refinance under better terms under a smart business strategy.
In other circumstances loans are refinanced to either reflect a more positive cash flow - or more often than not new credit lines are required to reflect the growing need for working capital due to higher sales, larger contracts, etc.
In many cases, merger and acquisition opportunities arise. Here loans are combined, and new financing structures might be introduced to reflect positive financial statements for the combined business. Currently, there is large popularity around short term working capital loans, allowing companies to generate immediate cash needs without taking on the burden of significant long term debt.
Lease financing is often restructured to reflect the useful life of assets, which can either depreciate or appreciate based on the nature of the asset. On occasion, the actual business owners may wish to address personal guarantees that are in place around current debt guaranteed by the business owner. If there is a bottom line on a company's ability to refinance business loans it's simply that each industry and company has different financing needs that might or might not be called debt consolidation or refinancing, and those needs change over time. That covers the gamut from financing distress to high growth.
IS REFINANCING REALLY THE SOLUTION FOR SMALL BUSINESSES?
In numerous instances, a simple amendment to existing debt might be a logical and simpler solution; augmented by additional cash flow financing via solutions such as non-bank asset based lines of credit, short term working capital loans, including easy cash flow solutions such as accounts receivable financing, factoring, etc. At 7 Park Avenue Financial, our most recommended solution for additional capital in this area is Confidential Receivable Financing, allowing you to bill and collect your own receivables and turn them into instant same-day cash. That's a smart business move!
CONCLUSION
A detailed analysis of your company's overall financing structure will often point to the need to refinance. Those all-important loan covenants or guarantees need to be reviewed to ensure proper refinancing action can be taken. We can therefore say that refinancing or restructuring debt for small business owners in some cases can be viewed as an opportunity, so speak to 7 Park Avenue Financial for more information about refinancing options under your firm's financial situation, a trusted, credible and experienced Canadian business financing advisor with a track record of success for Canadian loan product solutions.
BUSINESS REFINANCING
FAQ: FREQUENTLY ASKED QUESTIONS
What is business refinancing?
The process of corporate refinancing is the replacement or restructuring of existing debts. Traditionally, small businesses were able to rely on traditional banks for loans and options for refinancing business debt.
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7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.
Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced
business financing consultant
.Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
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