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Top 10 Credit Tips You Should Know

September 18th, 2021

The followings are top 10 credit tips to assist businesses that are seeking finance or refinancing:

1. Start early: the risk of not being able to refinance is placing many businesses of all sizes under intense scrutiny to demonstrate that they have addressed refinancing risks. Lenders now have less capacity to lend and a lower risk appetite, so it may take time to effectively address the refinancing risk.

2. Ensure your business is ready: it is important to ensure statutory payments are up-to-date and payments to trade creditors are within expectations. Obtain evidence to demonstrate that tax payments, workers’ compensation scheme payments, superannuation/pension/provident fund contributions, and aged creditor listings are in order. Make sure financial statements reflect the trading position, and that you disclose any other information that may be relevant to a lender, including any pending litigation the business is involved in.

3. Consider expert assistance: given the current state of the debt market and the fact that many CFOs or equivalent may not have refinanced under such conditions before, a business with significant financing or refinancing needs should consider seeking help from external advisors.

4. Spread the risk: consider using multiple lenders to meet financing or refinancing needs. In using multiple lenders, you should have a number of lead lenders to reduce the risk of one lender withdrawing.

5. Consider alternatives: with debt finance scarce and possibly expensive, other options to finance debt may need to be considered, such as a working capital improvement program, liquidating assets, raising new equity and changing strategic direction to reduce the need for finance.

6. Be familiar with industry gearing standards: if your gearing ratio is high, it is likely to lessen the chance of accessing finance or refinancing. Methods of reducing your gearing ratio include liquidating assets, raising new equity or using spare working capital to pay down debt.

7. Ensure all covenants can be met: stress tests your forecasts to see under what circumstances covenants may be breached. It is important to stay on top of covenants and act if you are close to breaching one.

8. Maintain banking relationships: it is important to maintain a close dialogue with current and potential leaders. Keep all lenders well informed.

9. Maintain governance: make sure the board is fully aware of the issues and the risks around financing and refinancing, including the possible need to change the strategic direction to reduce the need for finance.

10.Stay informed: keep up-to-date with volatile and changing debt markets in order to assist in decision-making on accessing finance and refinancing.