What Problems Could I Face if I Choose to Re-finance My Business?

There are a number of reasons why you may be looking to refinance your business. You may want to consolidate some of your debts into a more manageable monthly outgoing or free up some cash for further investment in your business. Whatever the reason, we’ll talk about your options and what challenges you may face along the way.

The first challenge is to decide where you want to borrow the money to refinance. You may decide to approach a bank to refinance, but there is evidence that banks are less likely to lend to businesses since the financial crisis. This may have eased, but it is still a challenge for small and larger businesses to access loans from banks, so it may pay you to look at alternatives.

Funding Circle is one option to consider. It’s specifically for small businesses who want to borrow and it collects investors who will get better returns on their investments than simply holding the money in the bank. According to Funding Circle’s website, they’ve lent more than £1 billion to businesses since 2010, from more than 50,000 investors including the UK government. If you run a small business, this could be a route to consider.

You’ll also need to decide whether you want to take out a secured or unsecured loan. Secured loans typically will allow you to borrow more money than you could on an unsecured loan.

If you choose a secured loan, you’ll borrow the money and secure the loan against something of value as a guarantee such as your property. This security allows the lender to take possession of your property to recoup their losses if you fail to pay back your loan. Think carefully before you follow this route, particularly if you are securing your loan on your family home.

Unsecured loans are usually for small amounts of money and you may not be able to borrow enough through this route.

One other option is to consider re-mortgaging your commercial property if you have one. Depending on how much equity you have in your property, you could raise some capital this way to refinance your business.

You should consider the cost of the re-mortgage though. You’ll need to factor in lender arrangement fees, valuation fees and legal fees to complete the re-mortgage. Your business will need to be in a good position too, as the mortgage lender will review how well your business is performing, your turnover, profit and all the other indicators of how your business is doing.

There are other refinancing options to consider, but this is a starting point and identifies some of the challenges you might face.

If you would like to discuss refinancing of your business in more detail with one of our specialist solicitors, call Christopher Taylor on 01264 325815, email: ctaylor@bsandi.co.uk or contact our business team via our no-obligation online enquiry form and we’ll be happy to assist you.