Member of the Board of AS Expobank V. Karpovs: Restart of the company's liabilities - which cases apply?
Although the retail loan consolidation service is becoming increasingly popular, many business leaders and owners still underestimate the refinancing opportunities for legal entities, which is rather high. To some extent, refinancing means restarting the company's liabilities and granting it new opportunities to get a more advantageous financial solution.
In which cases can a company use the refinancing option? In general, this can be any situation where you are not satisfied with your existing relationship with your bank or banks. There are cases when the existing bank refuses to change the terms of credit liabilities, although the situation on the client's side has changed significantly. Refinancing can also be useful if a company wants to borrow additional funding or release part of the collateral, but the existing bank cannot or does not want to do so due to various risk considerations.
In case credit liabilities are in several banks
Liabilities restart or refinancing can also be useful in cases when a company has credit liabilities in several banks. With the help of refinancing, it is possible to combine loans or credit lines into one, thus facilitating the company's internal accounting, simplifying the distribution of cash flow, as well as more convenient control of collateral and insurance matters. When operating with several banks at the same time, it must be remembered that each bank will also have to submit a separate financial statement, meet the specific conditions of each bank and follow several deadlines, which means more time and human resources than in the case of a merger. In general, refinancing also largely means optimizing the company's cash flow. It should also be remembered that in order to combine loans, an entrepreneur does not have to choose one of the banks where he already receives day-to-day services, it can also be a completely different bank where the company in question is not yet a customer.
Other bank's opinion
The bank's customer always has the right to ask the opinion of other market participants, i.e. another bank. For example, if we own an apartment that no longer meets our needs and we want to buy another, larger, brighter or in a different location, we look at several other housing options instead of agreeing to the first offer. However, in the case of banks, we tend to forget about such a possibility. Without comparing banks, an entrepreneur will never know whether another service provider has a different risk policy and, accordingly, a different view of the client's financial situation and development prospects.
Possibility to release part of the security
Refinancing can bring a number of significant benefits to a company. First and foremost, to save time and human resources that could be devoted to business development. Secondly, a financial restart may also result in a financial benefit to the entity, for example in the form of more favourable credit terms. Thirdly, it is possible to receive additional financing or release some of the collateral that would be used for lending and diverted to other business development plans.
Expobank's 30 years of experience show that the situations in which companies choose to refinance can be various and each case is considered individually. The most important thing is that the company has a clear and acceptable credit history and appropriate financial position. However, as mentioned before, banks' credit policies tend to be different, so a comparison must be made before decision-making.
Promoting cost optimization
Although refinancing as one of the financial instruments is still relatively little discussed, considering that it may indicate problems for the company, it is - in fact - a normal practice that usually contributes to expenses or cash flow optimization. There is no need to be afraid of refinancing, on the contrary - it can be a solution that helps the company "breathe easier" and take steps towards the development goals.
Facilitated re-lending between a number of banks
Also, with regard to re-lending, it should be reminded that for several years (since June 1, 2018) a cooperation agreement on facilitated re-lending procedures signed by the members of the Latvian Financial Industry Association has been in force. The agreement stipulates that when transferring liabilities between these banks, the cooperation terms cooperation will already be clear and no additional agreement will have to be signed with the customer and the two participating banks. The facilitated transaction processing process also applies to legal entities (including with commercial pledge collateral). The procedure specified in the cooperation agreement is applied only in refinancing transactions, which do not involve the purchase of new real estate or difficult situations.
For more information please contact
Head of PR and marketing at AS Expobank