Why restructure or refinance?
By restructuring you can ensure your debt repayment structure is aligned with what your business can afford now and what it is likely to be able to afford in the future. If work is scaling down and repaying debt is becoming challenging, restructuring can provide a less aggressive repayment schedule, giving you more wriggle room and less stress when managing monthly cash flows. Remember businesses don’t fail on interest rate, they fail when they run out of cash!
You should also consider the lenders enthusiasm for risk in a slowing economy. You may find yourself in the position where your funder had once been eager to provide finance, but are now reluctant, making it tricky for you to do business. This is particularly the case with certain industries and “higher risk” customers feeling the impact of capital adequacy requirements within the big four banks. Media feedback, and what we are seeing from the main banks, suggests they will be more selective on the transactions they want to fund, and on what price they obtain for that funding. Certain sectors, such as farming, are already seeing a much reduced bank appetite for new clients https://farmersweekly.co.nz/section/agribusiness/view/bank-plans-put-pressure-on-farmers
In this situation, restructuring gives you the opportunity to assess your position with your current funder, but also allows you to assess the merits of a switch to a lender with a greater appetite for your business, or perhaps a specialist lender - one that better understands the nuances of your business.
We are currently seeing more variation in pricing between lenders – depending on whether they have chosen to pass on recent reductions in wholesale interest rates or retain those to strengthen their own returns. Their decisions are based on variables such as where they source their funding, what regulatory change they are facing, how they risk grade each individual customer, or can be as simple as which lender needs to write business to hit sales targets.
Additionally, the slowing property market means property values are not appreciating like they once were, making it more difficult for bank lenders to support working capital and other forms of funding against property. We are seeing more transactions where we leverage the value in non-property assets like machinery or debtors to ensure that our clients have the correct form of funding structure in place.
Conversely, if things are going well and you are looking to grow your business, restructuring or refinancing can help ease some of the financial pressures that come with expansion and ensure that you have the flexibility to increase debt repayments during the good times. We also frequently see incumbent funders becoming “lazy” with existing clients. Often working capital limits are not proactively increased, the funder retains more security than it really needs, or pricing is not updated to reflect an improved set of financials. A comprehensive review can ensure your business receives the most appropriate package of funding.
Fortunately, here at Finance New Zealand, we specialise in finding the best finance solution outcome for your business. We work with a range of lenders, from the big banks to specialists in your industry. As our clients’ businesses get stronger or weaker, or as an individual lender changes their appetite we can adapt easily to those circumstances. Chat to your business partner about assisting your business to look at your current debt structure and how it could benefit you.