Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsRefinancing Your DebtFor many SMEs, the initial financingarrangements put in place at start-up stillremain in place for many years later. Forexample, a business starts off with a simpleoverdraft facility and just arranges forseveral modest increases in the facilitywithout considering the cost–benefi t of thefacility or the suitability of the debtarrangements to its needs.SME owners are encouraged to reviewexisting debt fi nance arrangements on aregular basis to ensure that the fi nancefacility and structure fi t the current needs ofthe business. You may fi nd that there is astrong case for refi nancing the business. Thisprocess should not be undertaken lightly, asthere are many pitfalls in changing lenders,all of which should be considered as part ofyour review.Refi nancing your debt fi nance may involve:• Changing lending institutions (but retainingthe same debt products);• Funding the business from different debtproducts (with the same or a different lender);Often SMEs havethe same bankingfacilities yearsafter they havestarted. A review ofexisting facilities mayhighlight that thecurrent facilitiesand structure needto be changed tomeet the change inbusiness operationsHINTRefinancing can involve anumber of alternatives. Toachieve the best outcome,ensure that you understandall the alternatives beforecommitting to anew lender• Combining debt into a single facility or product;• Increasing or decreasing the total amount of the borrowing as part of therefi nancing;• Changing the repayment amount or timing; and• Increasing or decreasing the security offered to the lender.143chapter 7-13 p79-181 Eng.indd 1438/15/11 5:03:06 PM