Article

Time to review your funding arrangements?

Richard Gillan Richard Gillan

Having come through arguably some of the most challenging banking times in recent years, with reduced levels of credit available, many businesses have seen growth plans either curtailed, or funded by alternative sources of finance. Such alternative sources include equity and mezzanine finance often taken at different times and at different rates as the various business needs arose. The funding taken out will no doubt have assisted the businesses with their cash flow, working capital or growth plans; however, it may also be expensive and unwieldy, with the business having to make different repayments at various dates in the month.  

In 2016 the constraints on credit eased and this looks set to continue throughout 2017, with the majority of mainstream banks in Northern Ireland appearing to have an appetite to lend to SMEs and mid-corporate businesses. As a result, businesses should now have the ability to review and potentially restructure their debt to ensure they are obtaining the most suitable funding package to meet their requirements.

Debt restructuring and refinancing can be a daunting prospect for many SMEs and mid-corporate businesses, but it does not have to be. As a starting point, it’s pertinent to consider the business’s current requirements and future plans.

In particular it is important to understand the requirements of the business both from a working capital and capital expenditure viewpoint. Careful consideration of both the historic and future cash flows will be required to identify both the peak funding requirement and its timing.

Equally it is essential to understand how the business uses the current banking facilities at their disposal from a day to day operational perspective. For example, the business should review the type and frequency of payments they make, the type of products they use or require and the type of platforms they use (online, branches etc).

Finally the business should consider the cost of their existing banking arrangements. The key input to the overall funding cost is the margin at which funds have been borrowed by the business.

For many businesses the cost is often the deciding factor. However, no business should review its facilities without considering all the factors at play.