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Case Study – Business Finance Restructure

Introduction

We were approached by the owners of a family run Construction and Property Development Company. They had a Business Finance Loan Secured against their residential property, on a second charge basis. The loan term had expired and they were unable to repay the loan. The loan needed to be restructured and funded by an alternative lender before possession proceedings commenced.

Background

The number of Lenders that would refinance the existing facility was limited for a number of reasons including clients age; refinance of existing business finance facility is outside underwriting criteria; poor company accounts; lack of equity in property; uncertainty about repayment strategy; not willing to offer facility secured against residential property. There were other issues that also needed to be taken into account. Including a Floating Charge that had been registered by a Development Finance Company. And demonstrating that the clients company was viable going forward despite the impact of Brexit and Covid19.

Proposed Solutions

Over a period of two weeks we worked with the clients to generate financial information, including cash flow forecast, profit and loss analysis and business plans. So that we could demonstrate to lenders that the company was viable going forward and that the clients were reputable and upstanding.

The funding options considered included cash flow finance which is very similar to an overdraft facility. However with the level of funding required at £320,000 it would have proven expensive and put our clients in a difficult financial position both short and long term. Unsecured Business Loans were also researched but due to poor accounts, turnover levels and low profit margins this option was not viable. The existing lender was approached with a view to extending the facility or restructuring but this request was refused. We also considered re-mortgaging the residential property but this wasn’t viable due to clients age and level of borrowing required.

Recommendation

Following considerable research and conversations with Lenders. We agreed the refinance with a short-term bridging lender. This lender was prepared to refinance the full amount and take a second charge against the clients residential property. Although the rates were not the most competitive at 1.35%/m serviced monthly and a 3% lender arrangement fee. This new facility has resolved our clients problems and gives them enough time to complete development projects that have been delayed due to Brexit and Covid19.

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