Some thoughts from Pat Walters, Strategic Business Development Director at leading accountancy firm Price Bailey, on the recent `hold’ decision from the BoE;
“With the Bank of England holding interest rates at four percent, they remain significantly higher than the 0.5% average seen between 2009 – 2022. With this, many businesses are still feeling the effects of higher borrowing costs alongside tighter covenants and turbulent market conditions.
“In an evolving market such as this, it’s now essential that businesses regularly assess whether their current debt facilities still work for them. A proactive review, via monthly or quarterly management accounts can highlight refinancing opportunities early.
“If affordability has become tight, or if covenants are close to being breached, it’s better to start the conversation now rather than wait for the bank to raise concerns. Reviewing whether the pricing of current facilities still reflects the risk profile of a business, or whether performance has improved may present opportunities to renegotiate with lenders for better structure and terms.
“Above all, financing reviews must be strategic and forward thinking, rather than reactive. We see many businesses only engage with their lenders when there’s a problem, but those who plan early tend to secure better structures and pricing – transparency and preparation make a significant difference. We also know that lenders will always stress-test projections, so it’s always better to present balanced scenarios rather than overly optimistic ones. This, alongside sharing recent trading improvements or new opportunities (such as contracts or markets) can also strengthen a business’s case.
“Importantly, maintaining regular dialogue with banks, alternative lenders and advisers, ensures you’re ready to act when opportunities arise. Proactive engagement, sound financial information, and a clear strategy remain the cornerstones of effective management of borrowing facilities. It’s important for businesses to approach discussions with lenders from a position of strength. Refinancing or restructuring is far more effective when performance is solid, and relationships are positive.”
More advice, including practical information on what to review before approaching funders, approaches to restructuring debt and how management teams can effectively engage with lenders, is available on the Price Bailey website here.
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