A. James Bradney writes:
As banks tighten their lending criteria, refinancing must seem nigh on impossible. Nonetheless, you’re not alone in this predicament, and there are a number of options open to you.
First, talk to your lender about potentially rescheduling your loans. You will need to prepare realistic projections on future revenues, profits and cash generation to show what level of debt your company is able to service. As your borrowing is long-term, your options may be limited here if the bank is not prepared to renegotiate your debt.
Alternatively, if you have substantial borrowings from the bank, you may be able to convince the lender to do a debt/equity swap, but you may need to give up a substantial amount of your shares. If you have a smaller exposure, the bank will undoubtedly want you to provide additional security, if available.
Another option would entail securing the backing of an equity investor. This will provide the necessary funds to refinance your balance sheet, but finding a suitable candidate is easier said than done. There are investors out there interested in making investments in distressed companies, but this will come at a cost.
Before embarking on any debt reduction or refinancing strategy, you need to make sure that your business has been streamlined – that all unnecessary costs have been eliminated and any further cost savings found. Even if you’re managing to stay profitable and cash positive, outgoings must be kept to a minimum. Ask yourself how cost savings can be made on the property itself. Is it worth looking at energy efficiency to combat soaring fuel costs? Another option would be to implement new initiatives, such as web-based systems, to reduce administrative costs.
When you come to renew your lease, it’s worth trying to negotiate a rent reduction from your landlord, as they generally will not want void periods, and you’ll be surprised at how long it can take to find a new tenant.
Finally, regardless of how tempting it may be to get your hands on some extra cash, never use tenant deposits to fund working capital requirements. These funds should be held in a trust account to avoid potential personal liability for directors should the business fail.
As always, time is of the essence if you want to explore these options fully, but you should seek help from experienced professional advisers before implementing any of the above strategies.
James Bradney is a founding partner of the firm that is now Bridge Business recovery LLP. He has extensive experience of dealing with corporate insolvency.
www.bridgebr.co.uk