Restructuring a commercial loan and cash flow

cash flow
cash flow

The $64,000 question is, should you sit tight and ride out the cost-of-living crisis and the ensuing economic storm, which is inevitably due to break in the coming months, that will surely lead to increasing demands on cash flow.

Or do you take a longer-term view and look to restructuring your existing loan on a standard variable rate to ensure that my payments are more affordable in the immediate and medium term when Bank of England based rates return to more affordable levels.

I guess the answer is, do you have a significant cash buffer in reserve to meet a down-turn in your business’s revenue and the higher short-term cost of borrowing, or do you look to restructure on more affordable terms, which doesn’t necessarily mean a lower rate of intertest from another lender.

Cash is king

To put it simply, the colloquial phrase “cash is king”, is so relevant in today’s economic times as businesses do not become unviable due to a decline in revenue or indeed an increase in direct and in-direct costs, whilst these factors may undoubtedly have an impact on the bottom line, it is more often than not the case, that businesses run out of cash, be it due to higher loan servicing costs or debtors not paying when due.

Debtors are a credit and bookkeeping function, under your direct control, whereas the loan servicing challenges more often than not are in the lender’s domain, as they have absolute control of your day-to-day cash facilities.

CFADS – cash flow available for debt servicing

When a lender recognises that the cash available from your business for servicing their loan otherwise known as CFADS (Cash Flow Available for Debt Servicing) is insufficient, the alarm bells start ringing, especially so if a request for an overdraft or an increase the existing overdraft facility has been requested which is often denied, especially so when businesses are in the retail, hospitality or leisure sectors, were customers in effect pay for services as they go.

How do I improve my business cash flow?

So how do you improve your cash flow? Well, there are a number of options available from requesting a capital repayment holiday from your lender, which will probably draw unwarranted attention to your cash flow problem, so not desirable, to refinancing your loan with another lender over a longer term, either on an interest only or part interest and capital, or a full repayment basis, perhaps with seasonal payment options, to take out the peaks and troughs of your revenue.

As with all of these challenges its best to speak to a professional firm of loan brokers, such as Stewart Hindley, who are experienced in your sector who can offer a solution to your cash flow difficulties before your lender takes action.



Stewart Hindley
Specialist financial experts helping you secure commercial loans across the hospitality, leisure and commercial property sectors.

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