Loan facility review
A South Yorkshire hotel operator came into difficulty with his High St. lender when the initial term of his debt had expired.
Our client was unaware that his loan facility was subject to review after 5 years, this is referred to as the initial term loan facility, although the debt was amortised over 15 years, known as the repayment period, our client assumed that the initial term would simply “roll on” as long as he maintained his loan repayment.
This is a popular misconception, as when the lender initiates an end of initial term review, the lender requires a valuation for the purpose of their security, which doesn’t necessarily represent open market value, for the purposes of their loan to value covenant as a result this can lead to a breach of loan to value covenant.
In support of the valuation the lender will also require 3 years trading accounts and management information to date to ensure that business can meet its debt service obligations both actual and when stress tested, as well as ensuring that there are sufficient cash available within the business to service the debt then this may also lead to a breach of covenant.
Breach of covenant
As our client incurred a breach of all of these covenants he was transferred to business support which is a specialist division within all banks that decide if the business can be “turned around” and if not, as was the case with our client, they (the lender) have requested that their debt be refinanced or the property (the lenders security) disposed of either consensually or non-consensual basis.
Turnaround finance specialists
Our client opted for a refinance and after searching the internet for “turnaround finance” specialists instructed Stewart Hindley to provide a refinancing solution.
After a thorough review of our clients’ business and with the assistance of a hospitality consultant to improve the metrics and dynamics of the trade Stewart Hindley were able to provide a refinance solution on preferential terms over a fully amortising period of 25 years with an alternative High St. lender.
Understand your hotel loan
The take away from our client’s experience is to fully understand what type of loan you are being offered and don’t be reluctant to ask questions and get a full explanation from your lender if you are in any doubt as they are duty bound to act responsibly and treat their customers fairly.
If in doubt about your business loan or your relationship with your lender, speak to a debt restructuring specialist, such as Stewart Hindley and Partners, for impartial and no obligation advice.
Call us on 01488 684 834 to get help today