In 2017, Martin Lewis said “Debt is like fire. It is a powerful tool used correctly, but use it wrongly and you will get burned.” As an analogy, it makes 100% sense and after I heard it, it has always stuck with me.
My name is James Clinghan and I run a North East based ABL brokerage where my team covers an array of business finance products. I have been asked to talk about refinancing and the potential benefits it can have for a business.
ABL stands for Asset Based Lending. We help businesses take a step back and look at their cashflow, look at the assets within the business and see if we can help them refinance in a way that is more suitable for the current life stage of the business than their current financing arrangements.
Why would you look at refinancing?
The first thing I was told when I joined the banking world was “CASH IS KING”.
That’s a good place to start – in basic terms, you either fund your business with cash, a cashflow product, or debt.
A business is like a living, breathing organism. If you don’t feed it and look after it right, it’ll wither away. Cash, a cashflow product or debt is how you feed the business.
Refinancing usually happens at two junctures:
- When the business wants to prepare itself to grow or go in a different direction; or
- When the business is being restricted and it needs some more breathing room.
We help businesses refinance for growth.
What are business assets?
You have standard business assets such as big physical items like buildings, machines and fleets of cars but you also have intangible items such as invoices and trade debtors. These are usually your main source of cash investment or where cash is tied up and also your biggest stores of value.
Next are the less thought about items: contracts, intellectual property, stock, imports, exports and even your online track record can be classified as an asset! The value of a business can be a lot more if you crack the ribs and really get a good look inside.
What is refinancing?
Refinancing is the process where you evaluate the cash and the current and future debts of a business and understand what debt structure will suit it better going forward.
What is ABL refinancing?
ABL refinancing is the process where we look at all of the stores of value within a business to establish whether it is possible to take security against these assets to lend the business more.
What if I don’t have any business assets?
This can make things trickier but all is not lost. There are local government funds, the British Business Bank’s Recovery Loan Scheme and, although not ideal, you can use personal assets.
What should I not do and what should I be aware of?
The most important thing is not to go into it too quickly – If you have time, try and make a sensible plan.
Secondly, understand what NOT to refinance and only refinance to the level that you need or you’ll just cause yourself a different problem.
Who should I ask for advice?
I’d love to say “ME”, however, that isn’t necessarily the right answer. You need to get a few ducks in a row before you make any decisions.
All businesses work on information: always try and keep good management information and a rolling 13 week cashflow forecast. It’s good practice and it hopefully prevents you from having expensive, last-minute issues. However, despite the best diligence, life will just occasionally throw you a curveball that you have to deal with as it comes.
Speak to your accountant regularly
Understand what is happening with your suppliers and competitors so you can spot whether there are potential issues in the market. Talk to your bank manager if you have one.
Know a good insolvency practitioner or debt advisory business.
We want to work with and help as many businesses as possible but we also want people to make good decisions and do things safely.
It’s also important to remember that you should only refinance your business if you need to refinance your business. As mentioned before, a good conversation with your current bankers, funding partners, your accountant, or an insolvency practitioner may be an equally good (or better!) solution.
REMEMBER – Throwing cash at a problem rarely works.
What should I do if I want to talk to you?
Find me on LinkedIn James@t-b-p.co.uk 07887-827827