A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Refinancing a Distressed Business
Refinancing means replacing existing debt with new debt - usually on different terms. For a distressed but fundamentally viable business, refinancing can ease cash flow, reduce monthly payments, and buy time to recover. But it is not a cure-all, and it increases overall debt, so it must be approached carefully.
When Refinancing Helps
Refinancing can help where:
- The business is viable - it can be profitable and cash-generative if the debt burden is eased
- Current facilities are expensive, restrictive, or about to expire
- Better terms are available in the market
- A new facility would reduce monthly payments and improve cash flow
Types of Refinancing
Asset Refinance
Borrowing against the value of existing assets - property, equipment, vehicles, or stock - to release cash. This can be useful where the company has assets but tight cash flow.
Invoice Finance
Using unpaid customer invoices to raise cash quickly - through factoring or invoice discounting. This suits businesses with strong sales but slow-paying customers.
Loan Refinancing
Replacing an existing loan with a new one on better terms - lower interest, longer term, or different security. This reduces monthly payments but may increase total interest paid.
Equity Injection
Bringing in new investment - from existing shareholders or a new investor - to strengthen the balance sheet. This dilutes ownership but does not add debt.
When Refinancing Is Not the Answer
Refinancing does not reduce debt - it restructures it. If the underlying business is not viable, refinancing simply delays the inevitable and increases the eventual loss. It also requires a lender or investor willing to back the business.
If the business is not viable, a CVL is the responsible route. If it is viable but burdened by historic debt, a CVA may be more appropriate than refinancing.
The Risks
- Personal guarantees - new finance may require new personal guarantees, increasing your personal exposure
- Security - new lenders may require security over your assets, including your home
- Increased total debt - longer terms mean more interest paid overall
Speak to a Licensed IP
Refinancing can be a useful tool, but it is not always the right answer. Our Manchester-based practitioners will assess your business honestly and tell you whether refinancing, a CVA, or another route is right - free and confidential.