Refinancing Challenges

It is well understood that the current environment makes refinancing difficult. Many businesses are struggling to find the financial support to allow them to plan confidently for the future at a time when having the committed support of your funding partners is more vital than ever. We have worked on a number of refinancing projects in recent months, from private equity MBO debt to SME bank borrowings and private property portfolios. We wanted to share some of the challenges we have found and how these can be overcome.


Raising or refinancing debt has become a lengthier and more complex exercise over the past 2-3 years. This is particularly noticeable on refinancing, where the process can be unrecognisable from when the facilities were initially agreed. There are various challenges we have encountered, including:

  • Lower level of profitability / cash flow. Many businesses are not performing as was envisaged when money was borrowed and covenants set.
  • Reduced asset values. Assets that were previously used as security may well have fallen in value meaning that they no longer support the same level of debt.
  • Tighter Loan-To-Value requirements. Lenders’ risk appetite means that greater asset support can be required even if the level of debt has not risen.
  • Scrutiny of forecasts. Lenders will require a greater degree of detail from financial forecasts and will look to ask questions on the sensitivity to changes in circumstances.
  • Fees and margins. Borrowing costs, including arrangement fees and interest rate margins, have risen and refinancing on equivalent terms is unusual.

How Have We Maximised The Chances Of Success?

Don’t be disheartened! Banks remain generally supportive, particularly of existing customers, and they too are keen to find an acceptable strategy. To achieve this, there are some key steps we have been taking with our clients:

  • Be open-minded. How can the debt be structured? What assets can be included or excluded? What additional security or comfort can the lender get?
  • See beyond the problem. Bankers, particularly those in Business Support / Restructuring, are often stretched. Spend time in advance of any meeting preparing a proposal which gives a ready-made solution for both the borrower and lender. This makes both your and their jobs easier.
  • Improve your forecasting model. Integrity and quality of financial forecasts will give a lender great reassurance. Financial models should be reliable, flexible and allow for “what-if” scenario planning.
  • Consider other lenders. Finance providers are very selective as to the new opportunities which they pursue, but an attractive and well-presented proposition can still be successful, particularly in the sectors which lenders are focussing on at present.
  • Be realistic about pricing. There are still good and bad deals to be found, but realism when considering the pricing on offer is important.

In summary, while we wouldn’t pretend that refinancing is easy in the current environment, taking the right advice and being prepared to invest some extra time and effort into fine-tuning the proposal maximises the chances of a positive outcome. We have achieved some notable successes which have given our clients peace of mind and security and allowed their businesses to move forward on a sound financial footing.

Neil Grimmond
About the author

Neil joined Craig Corporate in 2005 and has been involved with both corporate finance and business management assignments. Corporate finance projects have ranged from diligence to...
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by Neil Grimmond