SB Partners logo

7 Business Financing Considerations

Why it’s important to review your financing structure


Joseph R. Schlett on August 30, 2017 in Advice for Business Owners

Businesses work hard to increase their operating performance, solidify their working relationships with suppliers and adapt to a changing sales platform involving technology advancements and intense competition. Other than equity retained in the business, the typical categories of financing include working capital financing, equipment and leasehold improvement financing and real estate financing.

Lenders often respond positively to financing requests and amendments especially as the competition to provide financing intensifies. Here are seven tips to consider:

Interest rates

Review the interest rates being assessed; gain some competitive market intelligence; request from your lender whether a reduction can be arranged (a client simply asked for a reduction of a variable rate capital loan and was granted a 1% reduction).

Variable floating rates versus fixed rates

Although variable rates near the prime rate of 2.95% are attractive and flexible, consider longer-term fixed rates that offer longer-term financial security (very recently, we noted a 5 year fixed rate involving real estate at 3.5%). Of course, where possible, build-in prepayment options without penalty in the event excess operating cash is available.

Lender Mix

Traditionally, most financing organizations want all aspects of the financing package. Consider the real opportunity to seek out different lenders for each component of your financing needs, where appropriate (very recently, we noted a bank accommodating the real estate financing only, at favourable rates and terms).

Internal Financing

Consider strengthening your balance sheet through retention of profits. This reduces the level of perceived risk to a lender and enables improved financing rates and terms. Additionally, the financial exposure of the company is reduced in the event of a downturn or unanticipated financial shock.

Corporate Security

Typically, financing organizations want (and take) as security all available corporate assets owned by the company. Consider re-visiting the corporate security arrangements. For example, does your working capital lender need as security capital assets and real estate assets as additional security?

Personal security

In situations where personal assets or personal guarantees are pledged, review to see if these can be reduced or eliminated.

Retail financing

Take time to review retail-financing programs from multiple sources to ensure that you are maximizing your referral fees and credits.

Although the above tips may be of benefit, business owners have to consider the value of existing relationships and loyalty dynamics before implementing any significant changes or amendments with their financing partners.