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Five steps to refinance debts

Five steps to refinance your business debts

Managing your business finances effectively is important to ensure that you’re never paying higher rates than you need to. However, more importantly, using the correct finance and refinance strategy will allow you to grow your business and take advantage of each and every opportunity that comes up.

Step 1
The first type of contact any business has with a financial provider is when they open their first business account. Business current accounts vary greatly in their charges and it pays to ensure that you are getting the best deal at all times.

Compare business banks accounts

Step 2
Many small businesses rely on the founder raising the start-up capital via personal finance such as credit card or loan debt. This frequently happens because of the difficulty many small businesses face in raising commercial finance. While personal loans for business purposes are effective means of starting up, longer term you should be focused on financial products designed for business.

Depending on what you are using your finance for, there is usually a product which is designed to be most effective. Here are some examples:

Buying vehicles or equipment – Asset Finance (HP or Leasing)
Buying commercial property – Commercial Mortgages
Working capital from invoices – Factoring or Invoice Discounting
Stock purchase – Trade Finance

Step 3
Depending upon the mix of commercial finance products you currently use, there are frequently ways to reduce the cost of each. Younger companies with lower credit ratings generally pay higher rates than more established companies who are seen as less likely to fail by a lender. This happens frequently in the commercial mortgages area where many small businesses use “sub prime” lender or brokers due to the difficulty in find a lender. Re-mortgaging at a lower rate can frequently save large amounts of money, aiding your cash flow.

Compare commercial mortgage quotes

Step 4
Many businesses face cash flow problems while waiting for clients to pay outstanding invoices. In such cases a business may be very profitable on paper however their cash flow is negative and a negative cash flow going on for too long can result in bankruptcy. In such cases invoice finance products such as factoring or invoice discounting allow you to raise cash from each invoice you write, often within 48 hours of raising the invoice.

Invoice finance can also be very beneficial to those businesses looking to raise working capital to reinvest or cash to take out of the company. As an example, a business with £250,000 in outstanding invoices could raise up to £200,000. Instead of being tied-up on the balance sheet, this cash could be used to invest in marketing, more stock or a business opportunity.

Compare factoring and invoice discounting quotes

Step 5
When purchasing assets for your business it is often a mistake to use cash to make the purchase outright. Paying by cash ties the cash into the asset meaning you own it outright whereas it could be used more effectively in the rest of your business. Using asset finance services such as hire purchase or leasing has two beneficial effects on your business; i) cash is not tied up in the asset but can be used in other areas of your business, and ii) there are frequently tax benefits from using asset finance.

Compare leasing and hire purchase quotes

When considering a financial review always ensure you are getting the right price but don’t underestimate the importance of service. It also pays to spread your borrowing around several providers, avoiding relying on your bank too much.

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