Coronavirus and refinancingPublished on 15th April 2020 2020-04-15T11:00:00+00:00
The coronavirus is affecting businesses of all kinds. Even if you are allowed to stay open, and even if you can find ways to work with customers or clients remotely, the chances are that your income will be drastically reduced.
This can be a problem for many reasons. The income may be very much lower than it is during normal times, however, the overheads (which were affordable then) will continue unchanged - but they will be less affordable now.
This presents a crisis for many businesses. Although the government may be able to provide some help with cash flow, and there could be rates holidays and even grants for some sectors, many firms are struggling to meet their existing commitments - especially when it comes to their loan repayments.
If your business has borrowed to acquire equipment, to buy in stock, fund expansion plans - or simply to support cashflow - you may have a severe problem now. If you already raised finance for your business through lending, you may now find that the repayments on those loans are adding to your cashflow burdens.
The loans you took out to build your business could now be in danger of dragging it under.
What has gone wrong?
Nobody could have seen the coronavirus coming, or predicted the level of disruption that it would mean. The simple fact is that you - and your lender - looked at your ability to make repayments on your existing loans based on your normal trading patterns. Your monthly turnover would be estimated from previous months, and with the economy growing slowly but steadily, many decisions were made on an optimistic basis.
The coronavirus crisis and the lockdown mean that the income you budgeted on having is simply no longer there.
It is easy enough to see that if the income that you were expecting from your business is not coming in, making the monthly repayments that previously seemed so simple to service has now become a major drain on what cashflow you have. Servicing the loan repayments may leave you with little left over for your other commitments.
You may already be eating into your reserves, and that is not a situation that you can allow to continue for any length of time. Your cash reserves are finite - if you have any at all - and you will need them when recovery comes.
What can you do?
Your lender is fully aware of the problems you are facing as a business. They will not want to be responsible for driving your business under.
However, although they may be sympathetic, they also have a business to run. They will need to know that they will be paid if they are not to call in the loan, or the security on which it is based.
If repayments have become impossible, you may be able to approach your lenders and discuss the possibilities of a repayment holiday.
This basically involves not making the usual repayments for a month or two until your business is back on its feet. This can only be done with the agreement of your lender and will require you to extend your loan term. In most cases, the interest you are being charged will continue to be added to your loan account during this time.
At Rangewell, we know the lenders who may be most receptive to this idea and we can help you approach them to see if it is possible in the case of your current arrangement. This may require putting together a business case for your lender, which will demonstrate that your business will be in a position to start repaying again once the crisis has passed.
This could be a reasonable solution which is, ultimately, better for your lender and for you and your business, but some lenders may be less accommodating.
Some may be prepared to negotiate terms such as an interest-only period for your repayments - but others might not make any compromises at all.
How refinancing might help
If your current finance is with a lender who will not look sympathetically at your request for a payment holiday, it may be possible to refinance your current finance agreement.
Even if your current lender may not be prepared to vary their arrangements, by finding another lender who can pay off your existing commitment, you may be able to agree to a loan that:
- Provides you with an initial repayment holiday - giving you vital breathing space for 2-3 months while trading conditions hopefully improve
- Offers a larger loan sum - increasing your financial resources, and helping you solve other financial challenges that you are currently faced with
- Offer a lower interest rate - it may be possible to take advantage of the reduction in the Bank of England base rate to find a loan that has a lower interest rate for repayments than your current lender. This will mean reducing your repayments when you start making them again
How easy is it to refinance?
Refinancing can be difficult if you are not a financial expert.
At Rangewell, we have the expertise to make a success of refinancing, because we know all the lenders on the market, and which to approach in a particular case.
In the current climate, refinancing can present more challenges than usual, but if you contact us to discuss your needs, we may be able to indicate whether or not refinancing is possible - and help you find the lenders who can provide it.
We are expert in all types of business finance, and we can help you find the funding that's best for you - whether you're looking for help with a government scheme, new lending - or ways to cut the costs of the funding you already have.
What’s more, during the current crisis we can provide the quickest way to find the funding you need. Call us now – our experts are ready to help you with your finance problems during the coronavirus crisis.
We understand the pressures you are under – and our service is absolutely free.
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