Debt refinancing, also known as loan refinancing, is a strategic financial solution that allows businesses to replace their existing debt with a new debt instrument offering more favorable terms and conditions.
An example of debt refinancing would be borrowing a 10-year note at a 10% interest rate to pay off a 3-year note with 20% interest. Another good example would be refinancing a 10-year note previously secured against Real Estate, which now needs to be freed from serving as collateral.
By engaging in loan refinancing, companies can benefit in several ways. One of the key advantages of loan refinancing is the opportunity to secure a better interest rate. As time passes, interest rates on loans may decrease, enabling businesses to refinance their debt at a lower rate than their current loan. This can result in significant interest savings over time.
Furthermore, debt refinancing can help improve a company’s cash flow. By refinancing their debt with a more favorable-term loan, businesses can reduce their interest and principal payments, allowing them to retain more capital within the company and allocate it towards other operational needs or growth initiatives.
The subject debt can be refinanced with a similar loan secured with receivables or Plant and Equipment (P&E) as collateral. Debt refinancing could help improve the financial cash flow of the business and, in some cases, increase the business’s book value if the company is funnelling through a buyout or a merger phase by freeing up some assets that secure the existing loans.
At Avon River Ventures, we are business-friendly liquidity partners. Our debt refinancing process involves comprehensive diligence and a review of the Balance Sheet and Income Statement to analyze your company’s debt and its cost of borrowing. If your company has a cash flow problem, we furnish and facilitate a refinancing transaction to ensure such a problem does not recur in the future.