Financial institutions will carefully assess the risk of dealing with your company before suggesting refinancing solutions. Before you venture out and choose your lender, be sure you clearly understand their expectations.
A strong management team
Any financial institution will want to verify that your company is well managed. Being profitable is one thing, but ensuring that you have the team in place to sustain growth is another. Start by demonstrating that your team members are competent and well-qualified to do the job. It would help to prove your successful track record by communicating past achievements and the soundness of your plans.
Comprehensive financial strategy
If you have a cash-flow problem, you need to show how you plan to avoid a recurrence of this situation. Present conservative financial forecasts to include different scenarios, i.e., best-case and worst-case. Be sure to clearly communicate how well you understand your financial needs and the factors affecting your business success. An important part is to understand how your level of risk is determined by assessing basic financial concepts, such as working capital, collateral and balance sheet.
Keep in mind that forecasting can be a complex task. It may help to rely on financial specialists to help you develop an effective business plan.
Proactive growth strategy
You need to demonstrate that you understand the risks and opportunities for your company. Your strategy is a result of looking closely at internal resources, the market, the economy, competitors, marketing and distribution channels and demographics.
A clear restructuring plan
If you're dealing with temporary difficulties, you should provide a restructuring plan. More detailed than a financial analysis, it includes measures to rectify an unprofitable position. The plan can present refinancing as one way to re-establish positive working capital by improving the terms and conditions of your current loans. Restructuring can include the sale of non-essential assets and inventory, which may generate additional one-time revenue.
A restructuring plan performs the same function as a business plan and must therefore serve as a guide for continuing operations. Like a financial forecast, it will be more convincing if it contains input from outside consultants who can help you with what can be a complex process.
Proof that you can repay
To obtain financing, you must prove your repayment ability, particularly if your company is in difficulty. Your earnings forecast should be conservative to avoid giving the lender any cause for concern. Before any new loan is approved, the financial institution will double-check your business credit and capacity with either Equifax or TransUnion.
Your chances of obtaining refinancing are greater if you have:
- good credit history by always fulfilling the repayment conditions on your previous loans
- credible financial forecast
- an honest and courteous relationship with your account manager.
Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.