#3 – Investing in Refinancing
September 5, 2019
On October we finance businesses for every important moment in their growth. Moments that provide a boost to their business. Such moments are called “Moments of Life”.
We like to tell our lenders more about what these important moments are and what they should pay attention to. In the third blog of the Moments of Life series we talk about ‘Refinancing’.
A business has many options for financing. There are traditional ways, such as a bank loan, issuing bonds or selling stock. Recent developments by several FinTechs have introduced alternatives, such as crowdfunding, and lowered the hurdles for alternatives like factoring and leasing.
It is important that the chosen financing matches the needs of the company. But the needs can change. The interest rate in the market can decrease or the company itself could continue to grow. As a result, other financing opportunities become attractive and it can be beneficial for a company to refinance. By refinancing, a company finds new financing to replace their existing financing.
Most companies still get financed by the bank. As an alternative to the bank, we commonly receive refinancing requests. Eco Lodge de l’Etoile d’Argens borrowed €625.000 on October to refinance the landscaping of newly acquired land.
Analysis by the credit team
A company can refinance to reduce costs, by refinancing their current loan to a lower-interest loan. Next to that, the company can extend the term of the loan. Thereby the company reduces the amount that is repaid monthly. The company could also reduce monthly repayments and interest payments by repaying part of the loan.
Another popular goal of refinancing is the exact opposite of repaying the loan. A company can choose to increase the loan amount. The additional money that comes available can be used for new investments, for example.
The last common refinancing goal is to consolidate several loans. The company then replaces several credit products with one loan, often at a lower interest rate than the current average.
There are, however, costs associated with refinancing. On the one hand, costs for the early termination of a contract and, on the other hand, a fee for the new financing.
– Tim from the Credit Team in Amsterdam« go back to posts list