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Dealing with a problem loan

Published on 27th November 2018 - Last update on 13th June 2019

There are many lenders serving UK businesses which offer a choice of lending, from traditional Secured and Unsecured loans to innovative products such as Merchant Capital Advances.

These lenders range from traditional high street banks to the new breed of online and alternative lenders. They include some which have adopted new business models such as Peer-to-Peer lending to increase the choice available.

Some specialise in particular types of loans or in specific sectors. Others may provide lending targeted at businesses with certain key challenges, such as a poor credit history.

At Rangewell we know virtually every lender in the UK market. It helps us ensure that the loans we help our clients secure really are the most appropriate and cost-effective for their needs - and from a provider that is entirely trustworthy.

Sadly, some lenders exist which do not meet the standards we set.

Some loans can become a problem

We have found that it is absolutely essential to get the right kind of loan from the right lender. We recently helped a client who had an existing loan which she realised was on terms that were far from fair.

She ran a hairdressing business and had borrowed £33,000 to extend and refurbish her premises.

“I was paying £1800 a month, and then discovered my loan was also subject to what was described as a ‘management charge’ of £200 a quarter. Worse still, I discovered that the lender had registered a second charge on my home.”

Our client had been advised that her loan arrangement was unfair and too expensive, and came to us for help.

“At the time I was just happy to get a loan. I didn’t realise that I was getting a bad deal, or that I should have shopped around.”

Having the wrong financial arrangements can become a problem for any business. High repayments can eat into your working capital, and if unfair conditions have been written into the contract, you could find yourself with severe financial penalties.

If you have a problem loan you need to contact us immediately to find a better alternative

Fortunately, there are ways to get your business back on track, and help you deal with your financial obligations, even if you find you are committed to a loan or other financial agreement with repayments that are simply too large for your cash flow.

We looked at the terms of our client's existing loan and saw that it would be possible to pay it off early. This meant that it would be possible to refinance - to take out a second loan, with a more favourable rate and term - to pay off the first, leaving our client better off and putting her business on a better footing.

How Refinancing works

Refinancing is simply the process of replacing an existing loan with a new - and better - financial arrangement.

There are several benefits to refinancing an existing financial agreement.

Getting monthly payments that fit your cash flow is probably the most important. In many cases, businesses take out a loan in the hope that their projected income will be sufficient to cover it. If they are overly optimistic, or if their business takes a downturn, those repayments could leave them with insufficient working capital each month.

In the case of our client, the repayments were affordable - but they represented a major drain on her turnover, preventing her from taking her business forward.

Refinancing can reduce these monthly commitments in several ways.

You may be able to extend the time you’ll take to repay. This will mean that the new monthly payment should decrease, although you should remember that a longer term will mean greater repayments overall.

It can also mean a better rate of interest. Lenders vary greatly in the interest they charge and some types of lending, such as Unsecured Loans, may have relatively high rates of interest. By refinancing to a lower rate, and perhaps to a more suitable type of loan, it is often possible to reduce interest costs.  

Large, long-term loans can show the greatest potential savings if they are refinanced to a lower rate.

We were able to find a solution for our client which left her much better off.

The solution

We found a lender which was able to advance £60,000 over two years as an interest-only loan. This cut down monthly repayments to a minimum - while providing a great deal more cash which would allow her to complete her refurbishment. At the end of two years, with the benefits of the work being felt by the business from increased custom, the loan would be converted to a repayment term loan.

“It was the perfect solution for me - I could say goodbye to what I realised was a problem lender, cut my outgoings - and have the extra cash I needed. It meant no more sleepless nights - and much better prospects for the future.”

You don’t have to have a problem

You don’t have to have a problem loan to benefit from refinancing. If you have several loans running at once, you may be able to consolidate them into a single loan. This can often allow you to reduce your overall outgoings by replacing many smaller commitments with a larger-scale loan with a lower interest rate.

Alternatively, if your business is doing well, you may want to increase the funds you have available to build on its success. Rather than simply approaching existing lenders, refinance from another supplier might help you secure a more attractive rate. It might also let you take advantage of a loan that is better suited to your needs. So, you might have a loan which could be replaced with a Cash Advance based on your future sales, or by an Invoice Finance arrangement.

Refinancing is suitable for businesses that are fundamentally sound, and want to look at more efficient ways to pay for the funding they need to move forward.

If you can demonstrate that your business is profitable, and can have a history of making on-time payments for your existing borrowing, call us at Rangewell. The chances are that we can help you find the refinance solution you need.


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Richard Mitchell

Richard Mitchell

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