The majority of commercial/portfolio investment loans with high street banks will typically have a maximum loan term or commitment period of five years.
With a backdrop of low interest rates since they were cut sharply back in 2009, until they began to rise again in December 2021, renewal discussions have in most cases been somewhat of a formality.
It was often as simple as an updated valuation, with an expectation of some capital growth, and the usual ‘negotiation’ on the renewal fee and interest margin. Then it was essentially ‘job done’ for the next five years with performing loans ticking the boxes on any LTV or interest covenant tests.
There was also a fair chance borrowers could take their business elsewhere if the terms were not palatable.
More challenging times
Roll on to 2023/24 and the circumstances are likely to be less favourable. In the wake of the ‘Truss and Kwarteng’ effect, 14 base rate rises over the past two years and unfavourable investment yield movements – times are very different regarding those previously comfortable loan covenants, making the renewal conversation somewhat more challenging.
There is rain in the air and the banks’ umbrellas are nowhere to be seen. A cosy lunch has the potential to turn into strained conversations around debt reduction or increased amortisation, the requirement for additional security, margin increases and in a worst case scenario a sales or disposal strategy in a buyers’ market.
Understand your potential options
It might be the case that you have a plan to increase income, reposition assets or add value through capex but you now need a different lender who buys into the strategy and will support you through a stabilisation period.
Or perhaps your portfolio is still performing but you just need a new lender who can offer more flexibility.
Whatever your circumstances, it is best to be prepared and be informed in terms of potential options in advance of any renewal discussions.
Why Cowgills?
At Cowgills we work with a wide variety of investors and funders and can provide impartial advice on financing options and strategies.
To find the right funding option for your business getting the right advice is essential.
Please contact David Rainford at david.rainford@cowgills.co.uk for any advice, or alternatively, get in touch via our website.
Disclaimer
The information was correct at time of publishing but may now be out of date.
