Debt Refinancing

Debt Refinancing is replacing existing debt with another debt instrument with more favourable terms and/or 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.

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.

Reasons why any company should consider refinancing their debt on an ongoing basis:

  • Get a better interest rate: As we discussed earlier, getting a better rate than your current loan is a win. Most of the time, the rates on the loans drop after they are borrowed, and hence, most of our clients enjoy better interest rates when their loans are refinanced.
  • Improve your cash flow: One of the primary purposes of debt refinancing is to add back the savings of the interest and the principal payments on the existing note when refinanced with another favourable-term debt instrument.
  • Leverage assets for special projects: Leveraging equity on the assets adds much intrinsic value. Assets such as a building, heavy machinery, or IP bear a great potential and book value which could be used for special financing projects such as launching a new product, covering the cost of an IPO, opening up a new location, or adding highly intellectual professionals to the team.
  • Increase the book value of the business: Refinancing fuels the business by increasing the savings/deposits and cash positions on the Balance Sheet. Companies looking for a merger, buyout, or exit - can leverage their strengths of book value to get a higher multiple on their acquisition pricing.
  • Buy more time to pay a short-term note when swapped with a long-term note: Secondary to getting a better interest rate, companies can extend the term on their notes by simply refinancing it with a longer-term note and lowering their monthly payments.
  • Save on principal payments for the initial period on the newly refinanced loan: Most refinanced loans come with the perk of InterestOnly Payments for the first 'n' Months. This again adds to the business's financial well-being by increasing the cash flow, which could then be diverted towards the growth of the business rather than paying off the lender.

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.