There will be occasions when it is necessary to renegotiate the
amount of your loan, the repayment period, or the conditions such as interest
rate or personal guarantees. Where the assets of a business are limited, anyone
lending you money may seek the added protection of requiring the owner
personally to guarantee the loan. In the case of limited companies, this is in
effect stripping away some of the protection that companies are supposed to
afford the risk-taking owner-manager.
The first step of a successful renegotiation is to convince your
lender you can ultimately pay off the renegotiated loan. You must show lenders
why it would be in their best interest to agree to a new arrangement. Showing
them your business plan is the best way to achieve this goal.
These are the things to keep in mind when renegotiating with your
bank:
Everything in business finance is negotiable and your
relationship with a bank is no exception. Banks are in competition too, so if
yours is being unreasonably hard-nosed, consider changing
Items that can be negotiated include; the rate of interest
(usually expressed as a percentage over the base rate), when repayments start
(anything between immediately and several months to a year out), or what
security is required to cover the loan
If security is required you should first offer business assets
as security.
If pressed to give a personal guarantee, set clear conditions
for the guarantee to end. Otherwise the bank may try to retain the extra
comfort of the security of a personal guarantee as part of your permanent
banking arrangements
Make sure the conditions of the financing are clear, as are any
events that could allow the bank to exercise their rights. Any funds advanced
by a bank will come with strings attached. These could include what and how
much of that money can be spent on which particular assets. If the funds are
advanced for stock and you use them to buy a new vehicle, however necessary for
the business that may be, you will be technically in breach of your loan
covenants.
