Refinancing means replacing an existing borrowing arrangement with a new one, usually to improve terms, consolidate multiple debts, or free up cashflow at a difficult moment. It is a legitimate tool, but it works best when used proactively rather than reactively.
Good reasons to refinance
- Your business has grown and your profile has improved. If revenue, profitability, and trading history are materially stronger than when you first borrowed, you may qualify for better terms. Refinancing to reflect your current position rather than the one you were in at origination is sensible housekeeping.
- You have multiple short-term facilities creating administrative complexity. Consolidating two or three separate arrangements into one can simplify repayment scheduling and reduce the risk of a missed date through oversight.
- A project is taking longer to generate returns than planned. If a term loan was sized around a completion date that has moved, refinancing to extend the term — rather than missing repayments — is the right conversation to have early.
Reasons to be cautious
Refinancing to buy time on a business that is structurally struggling is usually a postponement, not a solution. If each refinance is larger than the last and the underlying cashflow has not improved, the debt is growing faster than the business's ability to service it. In that situation, an honest conversation with your accountant about the fundamentals is more useful than another facility.
How to approach a refinancing conversation
Come prepared with up-to-date management accounts, a clear statement of what the existing facility was used for, and a specific explanation of what the new arrangement would achieve. Lenders — including us — make better decisions and faster ones when the purpose is clear.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: Keeping business borrowing proportionate to revenue, How to make the most of a revolving credit facility.