Restructuring your finance may be an option to consider to reduce your current monthly repayments to improve cash flow, to continue to meet critical expenses or to enable a new opportunity. However, particularly if you are facing financial challenges, any restructure of your existing finance obligations, will be at the sole discretion and judgement of any lender(s) and will need to be considered carefully to ensure that it meets their criteria and is in your best interest.

Your ability to restructure will generally involve consideration of the following important key factors:

Interest costs – evaluating to what extent any restructure of existing fixed term finance: 

• sees your interest costs increase, which may not be able to be offset by increasing terms to reduce monthly payments; and
• whether break costs might apply, which undermines the effectiveness of a restructure.

Your current financial position (personal/business) – establishing that any challenges you are facing are just short-term and that you or your business has genuine opportunity in front of it. Or if a restructure enables you to pursue a new opportunity, that this is well thought out with demonstrable improved financial performance. 

Ability to extend finance terms – extending terms can be a good way to reduce monthly payments but this will generally depend entirely on an assessment of what equity exists in the asset(s) that you have financed, relative to the current finance balance and what the remaining economic life is of each financed asset. It is critical that any restructure does not result in revised loan terms exceeding the economic life of your underlying business assets, as doing so can result in negative equity building over time.

Your overall equity position (in your assets) – there may be an opportunity to utilise any equity that you have (both in financed and freehold assets) to maximise any refinance opportunity by the use of your other assets as additional security. This generally requires each asset to be valued and an assessment made on its remaining economic life, which would then shape any restructure terms. 

Your risk and any additional obligations – to what extent that any refinance may require the support of personal property, personal guarantees, broader business guarantees, or additional covenants or constraints imposed by a Lender. 

The appetite of lenders – the ability for any lender to support you will generally depend on their appetite for risk, which will generally be influenced by their funding mechanisms and credit policy. Dependent on this you may have an opportunity to either consolidate your existing finance by refinancing with one funder or spreading the risk over a portfolio of lenders. 

Any restructure is a balance between the cash impact (benefit) to your business, and the costs associated with paying more interest over longer loan terms. This is compounded by the current interest rate environment, where a restructure may involve breaking fixed rate lending that was priced when interest rates were lower than they are now, and refixing onto today’s higher rates. “Cash is king”, and it is important that your business has a repayment structured realistically aligned to cash generation in today’s generally tighter economic environment. No business can survive sustained periods of negative cash flow, so sensible and carefully considered debt restructuring may be the right option for your business.

At Finance New Zealand, we’re here to help – our collective experience in the finance industry coupled with the established relationships with our funding partners ensures that we are well positioned to provide you with the assistance that you might need for any financing requirement.

If you are experiencing any challenges or if you’d like to discuss whether a refinance might be an option for your business, contact your local Finance New Zealand Adviser.