It is critical that management takes an active role in the financial management area of their business. Not only should they utilize their in-house financial records to make sound business decisions, but they should always be in tune with their financial partner, most often, this is their lender for commercial and agricultural enterprises. Like any partnership, there can be ebbs and flows to the stability of the relationship, but it is incumbent on management to know when their lender is not on the same page and has little appetite to increase or continue the lending relationship.
What is Business Refinancing?
Whether it be a commercial venture or an agricultural enterprise, owning and operating a business is a dynamic and often exhausting undertaking. Businesses go through many peaks and valleys during their life cycle, and one key component to managing through all of this is the lending relationship with your bank, credit union or lease company. There are times when a business may hit a low point due to macroeconomic factors or poor management decisions, which results in the lender expressing dissatisfaction or concern with the business performance.
Often this leads to written or verbal communication for the business to find a new lender within a reasonable period. During periods of high growth, a company may find its lender uncomfortable with providing matching growth capital due to the sector they operate in or due to an already leveraged balance sheet. Alternatively, founding partners of a business may decide they would like to sell the successful business they have built over decades either to a new player or as part of a successful plan to a family member or management team. During these events, although positive and healthy, the current lender may not be able to underwrite the required financing, and so more creative structures or capital providers may be necessary to achieve the sale.
Three events where business debt refinancing services can assist management
When a company is in some degree of distress and the lender indicates dissatisfaction with the lending relationship.
- If management feels that they can address past issues and turn things around, obtaining a new lender, even if more expensive in the short term, can buy the necessary time for the business to recover without the threat of foreclosure.
- Options include business debt consolidation with a patient long-term lender, obtaining a secondary lender which may provide more capital albeit at a higher cost, or like in the current environment seeking a Covid business loan through one of the government support programs.
At times, during periods of high growth, companies require additional capital to fund the same, but their lender may not have the comfort to expand their existing debt exposure.
- If the margins are supportive, it may be advisable to consider moving to a lender specializing in Accounts Receivable financing, as they will focus more on the quality of their contracts and customers as opposed to the balance sheet. This will be more expensive lending but facilitates growth in the short term until the balance sheet can support more traditional and cheaper lending.
When it is time to sell the business through an MBO, outright sale, or succession planning within the family, there is generally a requirement of significant capital to facilitate.
- Depending on the nature and structure of the sale, the capital requirements may exceed the comfort level of the incumbent lender for a period of time. To successfully close the contemplated sale, it may be necessary to source capital from a Private Equity firm or speciality lender that focuses on financing these types of transactions.
With all the other operational balls a business owner has to juggle to keep their business running smoothly, the notion of staying on top of their financing relationship and sourcing new capital providers can be daunting. This is where engaging a firm like Hawco Peters can reduce the stress, and the business can keep focussing on what they do best. Hawco Peters, with over 150 capital provider contacts, can target and source the right financial partner to move forward with, no matter whether the business is in a distressed state, growing rapidly, or looking at a transition event or sale of some type.
FAQs
Q: My lender has indicated that they no longer wish to finance my business. What should I do next?
Contact Hawco Peters, and we will arrange a time to discuss the situation at a high level at no cost and see if there may be a fit to work towards a finance engagement that will seek to find new lenders. Once the engagement is signed, communicate this to your lender so that they know you are trying to fulfill their wishes, which may provide additional time to complete the transition.
Q: My company just obtained three new contracts with high margins, but it means our revenue will triple this year. We don’t have the working capital to support the increased accounts receivable, and our lender is unwilling to increase our operating loan?
Consider engaging an Accounts Receivable focussed lender to get you through the completion of the contracts. Sometimes they will work with your existing lender and jointly finance the growth, or alternatively, you work solely with this new lender. Hawco Peters can assist you with the options in this area.
Q: I want to retire and sell my successful business, but I have no family or management team that wants to take it over, and I’m scared to deal with the Private Equity firms. What are my options?
Dealing with Private Equity firms can be intimidating for anyone. It is difficult enough to close a deal when all goes to plan but can be a tremendous undertaking if the Private Equity players and the seller don’t mesh. Hawco Peters can source potential private equity partners that not only are capable of funding the capital requirements of a sale but also that have a personality fit with the current owners.
