Is it time to review your borrowing?

Many businesses are, and have been for a while, feeling the effects of higher borrowing costs, tighter covenants and changing market conditions. Whether prompted by fluctuating interest rates, upcoming loan maturities or plans for growth, now is a good time for business owners to assess whether their current debt structure still works for them.

Refinancing your current lending arrangements is about ensuring your borrowing supports your strategy – whether that means refinancing for better terms, adjusting repayment schedules, or reshaping facilities to match your cashflows.

When reviewing borrowing facilities, clarity of purpose is key. Understanding why you’re revisiting your facilities and approaching lenders from a position of strength will help secure better outcomes.

When should you consider restructuring your debt?

A company’s borrowing facilities should be reviewed regularly (not just annually) or whenever (well in advance if possible) a significant event occurs. A proactive review, via monthly or quarterly management accounts, can highlight refinancing opportunities early and help avoid problems later, such as speed of delivery. Triggers might include:

• Approaching the end of a facility term.
• A new acquisition or major contract win.
• A change in trading performance or working capital requirements.
• A shift in market or economic conditions affecting affordability.
• A covenant pinch point or tightening headroom.
• The need for larger or more flexible facilities.

If affordability has become tight, or if covenants are close to being breached, it’s better to start the conversation early rather than wait for the bank to raise concerns.

It’s also worth reviewing whether the pricing of your current facilities still reflects your risk profile. If performance has improved and your business has grown, you may be in a stronger position to renegotiate better terms.

Above all, financing reviews should be strategic rather than reactive. Many businesses only engage with their lenders when there’s a problem, but those who plan tend to secure better structures and pricing.

Which businesses can gain most from restructuring in today’s market?

Updating your financing structure can benefit both strong and struggling businesses, but those with solid fundamentals tend to see the greatest advantage. Companies with:

• Strong and sustainable EBITDA and cash generation.
• Low leverage – net debt to EBITDA.
• Net borrowings compared to asset value – i.e. fixed assets (such as freehold property or plant & machinery) or trade debtors.
• Cash reserves available to pay down debt.

Businesses in these positions can often refinance on more favourable terms, reduce borrowing costs or release capital to support growth. Companies with international operations or plans to expand abroad may also see an advantage in updating their financing structure.

Conversely, sectors with contractual revenue streams, where cashflows can potentially be pushed out to future periods, or businesses linked to consumer discretionary spending, where revenues are more cyclical, may find it harder to secure new funding or achieve lower pricing.

What should your business review before approaching funders?

Before opening discussions with a lender or adviser, make sure you have a clear picture of your business’s financial position and objectives. This includes:

• A detailed business plan with prior year, current year and three-year forecasts (profit and loss, balance sheet and cashflow) supported by detailed, realistic assumptions.
• A review of historic forecast accuracy and covenant headroom.
• A clear understanding of your business model, strategy and management capabilities.
• Up-to-date market analysis and awareness of any concentration risks among customers or suppliers.

A strong balance sheet and sustainable EBITDA are key indicators of financial health. Funders will also look for evidence of covenant compliance, tangible assets, cash headroom and retained value within the business.

If your existing relationship with your bank is positive, it may be better to build on that than switch for a small pricing gain. However, if communication has broken down or you need facilities your current funder can’t provide, exploring the wider market makes sense.

What are the main approaches to restructuring debt?

Restructuring can take many forms depending on a company’s needs. Common approaches include:

• Engaging a corporate finance/debt adviser to review the full funding landscape, model different options and help negotiate the best package.
• Independent financial review to provide an objective view of cashflows and demonstrate the base case to lenders.
• Engaging with both incumbent and alternative funders to compare appetite, flexibility and pricing, and to ensure your core banking relationship is providing the best suite of products. For example, type of cashflow loan (Revolving Credit Facility, term (amortising or bullet)), trade, invoice or asset finance.
• Re-aligning debt structures so that repayment terms and facilities better match projected cashflows.

Price Bailey can assist businesses through each of these steps, from integrated cashflow modelling to audit and outsourcing support, ensuring the numbers stand up to funder scrutiny. We can support businesses in approaching funders from a position of strength.

Our Corporate Finance team also advise on structuring, tax clearance and financial due diligence for transaction-related funding, such as acquisitions, buy-outs, EOTs and shareholder restructures.

How can management teams engage effectively with lenders?

Transparency and preparation make a significant difference when negotiating with lenders. Management teams should be open about current performance, demonstrate a clear understanding of their forecasts, and provide realistic, detailed financial assumptions.

Lenders will always stress-test projections, so it’s better to present balanced scenarios rather than overly optimistic ones. Sharing recent trading improvements or new opportunities (such as contracts or markets) can also strengthen your case.

Above all, approach discussions from a position of strength. Refinancing or restructuring is far more effective when performance is solid, and relationships are positive.

How could interest rate movements affect future refinancing decisions?

Falling rates would encourage more businesses to refinance or expand borrowing, while rising rates would put further pressure on affordability and covenant compliance. However, shifts in lender appetite and policy often have a greater day-to-day impact than rate changes alone.

Most businesses don’t have a formal funding strategy and tend to react when facilities approach renewal. Building financing requirements into broader strategic reviews, alongside acquisition or investment plans, can help businesses move faster and secure better outcomes when conditions change.

Maintaining regular dialogue with banks, alternative lenders and advisers ensures you’re ready to act when opportunities arise. Proactive engagement, sound financial information and a clear strategy remain the cornerstones of effective management of borrowing facilities.

Closing thoughts

With interest rates currently forecast to reduce slightly over the next 12 months and lending appetite continuing to evolve across the market, it’s worth reviewing your facilities regularly to ensure they still meet your needs. Businesses that plan, maintain strong relationships with funders and understand their financial position are best placed to secure favourable terms when opportunities arise.

How Price Bailey can help

Price Bailey’s Corporate Finance team is willing to invest upfront time with businesses of all sizes to review and optimise their funding structures. Our team can:

• Work on transactions such as acquisitions, management buyouts (MBO’s) and employee ownership trusts (EOT’s).
• Build detailed, integrated forecasts across profit and loss, balance sheet and cashflow.
• Support the preparation of robust business plans for refinancing or new funding.
• Advise on the most suitable mix of facilities, funders and lending structures.
• Provide independent reviews to strengthen your position with lenders.
• Our Corporate Finance team work closely with our multi-service offering to deliver audit, tax and outsourcing services that improve the quality and structure of financial information.

With access to a broad network of funders, from tier-one banks to alternative lenders, we help clients approach the market with confidence and secure the facilities that best support their long-term goals. Fill out the form below to contact a member of our team today.