Business Lending Tips

The world has changed. Not the Jurassic period, pre-war or even Christmas but the last seven days. In the space of a week the FTSE has ‘crashed’ to 5800 and rebounded back to 6300. It just goes to prove that the biggest threat to financial stability is uncertainty and that the financial sector does enjoy a knee-jerk reaction to anything.

Keep that point in mind, uncertainty. I will come back to that.

I took several calls last Friday about the commercial lending market, was it going to crash, was it going to be like 2008 & 2009 all over again, should I borrow or hold off. The answer is to stay calm and do the right thing for your business.

All the time there is uncertainty (that word again) there will be fluctuations in property, equities and anything financial including commercial lending.

What won’t happen is a sudden cessation of  lending to SMEs. There are now more lenders in the SME sector than there were in 2009 and a broader spread of lenders for the SME to approach for finance. The reliance on the big 5 banks is still there but it is much lesser than it was back then.

Still, some tips on what to do would be handy. With that in mind:

Renew That Facility

If you have an overdraft or other revolving lending facility then it will be up for renewal annually. Get your last renewal letter out and if it has less than 6 months to run then consider asking for the facility to be renewed now. If lenders do move the goalposts then you have the facility in place for the next year and can better plan your cash-flow around it. It may cost you a renewal fee but it could be money well spent.

Take The Limit

Many lenders will offer to increase credit limits at a time when you don’t need it. If you get the option of a higher credit line or credit limit then take it. If you don’t use the facility then no problem, but it does give you something extra for the warchest. Sometimes we dismiss offers to increase credit limits because we never use what we have, now might be a good time to change tact and take it while it is on offer. If times to get tougher then it will be much harder to access credit, remember that lending to SMEs is often the first thing to be cut back by banks.

Check The Break

During the mid 2000’s banks were keen on adding a ‘break clause’ into their loan agreements. What this meant is that any commercial term loan over 5 years had an option for the bank to renegotiate the terms. Many of these earlier break clauses had no upper interest rate or limitation in place, this means that the term loan you think is there for the duration may not be as definite as you think. Get your loan agreement and read it. Look for any ‘break’ ‘renegotiation’ or ‘variation’ clause within it. If you find a clause then seek to get it reviewed now, the clauses normally take effect on an anniversary basis so bringing this forward could buy you more stability at the right time.

I hope these few small tips will help put you in a more secure position during a period of uncertainty (I said we would mention that again). If you have any questions please call on 01293 541333 or 0207 866 2012, add your comments above or contact us direct.

By Dave Farmer

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