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Refinancing a business in a Covid-19 age: A step by step guide

(Image credit: Image source: Shutterstock/Peshkova)

It is still difficult to predict how the Covid-19 pandemic will continue to disrupt our lives, jobs and the wider economy. Whenever there’s that much uncertainty, already challenging scenarios, such as refinancing a growing business, can become all the more difficult.

Refinancing is a way for a business to get the breathing space it needs within its cash flow, which is why at this particularly volatile time many will be turning to secure the funds they need to stay afloat and continue to grow.

We at eacs have recently secured a multi-million refinance deal, which allowed us to not only refinance an existing facility, but to upsize the debt on more favourable terms to support the growth of the company. However, although the deal managed to get over the line in the end, this did not come without its challenges.

With this in mind, we have put a number of practical considerations below, based on our own experience, which should help prepare businesses considering refinancing in the age of Covid-19 and beyond.

1. Build a relationship with key stakeholders early on

Under what is now being described as ‘normal circumstances’, businesses that were seeking to refinance would normally start the process of with a proper kick-off at a round table meeting or face-to-face consultation with the different stakeholders, particularly the legal and funding teams. This allows any key issues to be raised and addressed early on, so any unexpected bumps in the road later down the line are kept to a minimum.

However, in the age of Covid-19 this is obviously not possible, and it is easy to see how businesses could sweep this important part of the process under the rug. By doing so, it is likely that unexpected problems may arise further on in the refinancing process, which could stunt any progress or even collapse the process entirely.

As most stakeholders will be working virtually, the first important step will be to ensure that a virtual roundtable is set up to develop a relationship between the relevant parties involved in the refinancing process. Whether it is on Microsoft Teams or another platform, ensuring good communication and the ironing out of any issues from the start is key. Ultimately, this will save time and money and create the ‘spirit of the relationship’ to deal with bumps sooner.

2. Have your ‘what if’ scenarios known

This leads on to a second important step: ensuring that your ‘what if’ scenarios are known from the very outset.

In any deal, whether it is refinancing a business or brokering a merger, there will be a number of concerns that you will have going into the process. Making yourself aware of these different events and challenges in advance will not only help prepare you mentally, but also put contingency measures in place sooner to try and overcome any issues speedily.

3. Know your business inside out

During a refinance, your business is likely to come under more scrutiny than it ever has done before. For example, the lender is likely to want to see financial documents that show how your business is currently trading, as well as your prediction for future patterns across the business.

To ensure the process is quick and easy you should prepare any paperwork in advance and get to know your business thoroughly. This will improve your chances of having a successful outcome and show potential lenders that you understand the ins and outs of your operation.

You also have to be able to demonstrate that you have stress tested your organisation if different scenarios happen. Covid-19 came out of the blue, but with Brexit firmly on the horizon it is crucial you have the financial systems ready to do the required scenario planning.

4. Have lots of paper and printer ink

It is now more than likely that you will be trying to complete a refinance from your living room or home office. This means that you do not have some of the office infrastructure that you use on a day-to-day basis readily available, particularly hardware such as printing devices.

Although this may seem like a rather futile and basic piece of advice, ensuring you have the required resources available, such as paper, printer ink and a functional scanner, is in fact a key step a business must consider when going through the refinancing process.

Anyone who has gone through a refinancing process before will tell you about the large amounts of documentation and records that you need to print out and keep on file. Without the resources to do this, you may risk drawing out the process for longer than anticipated.

5. Create your own data repository that can safely store documents

‘What if’ you lost a key piece of financial information about your business that you needed to provide to the lender? ‘What if’ you lost an important piece of correspondence that you needed to give to the lawyers?

These are all scenarios that could arise, but ensuring you have a system in place whereby important documents are stored in your own data repository will help you avoid instances like this.

This is all the more important now that the large majority of the refinancing process will be occurring electronically, which means that storing important pieces of digital information in a dedicated, secure online space will help keep them safe and ensure that you have the right information ready to hand. 

6. Plan for the deal to take double the time

Finally, at the best of times, refinancing can be a long, drawn out process. However, during a period of increased instability and uncertainty, businesses must recognise that the required checks and balances will be twice as intensive and twice as long.

In our experience, the timing for the fund-raise was not ideal with lock-down commencing part-way through the process, which had a knock-on effect on the time it took to complete the deal.

Even with the lockdown easing, things aren’t likely to get any quicker. Businesses must plan for the deal to take at least double the time.

Kevin Timms, CEO, eacs