Professional Wealth Management

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Debt Financing

The first rule of debt is, provided that you are a good risk, you may get your rate reduced. On most corporate debt this can produce instant savings of thousands of pounds a year.

If any of the following strike a chord, then you may well have scope to reduce payments, either by moving the debt, or pressuring your bank into being more realistic as to what level of interest is truly fair for a good reliable client such as yourself.

Permanent overdraft
This is de facto long-term debt and should be priced as such.

Unsecured lending
Is it really unsecured? What would happen if you defaulted? Are personal or corporate assets actually at risk? If so, then why pay the higher rate of interest?

Personal guarantees
If you have given them, then your own assets (eg your home) are at risk, and your interest rate should be closer to that for a domestic mortgage than commercial rate.

Loans secured on commercial property or other assets
This is fine unless there should be a problem, when your house could be at risk. If this is the case then you may be paying over the odds for the borrowing.

Debts whose charging and interest rate structure was set up when the firm was going through a difficult period
If the company is now much stronger, explore refinancing at rates that represent the new low risk profile of the business.

Changing debt structures

The treatment of any particular company will vary according to the nature of the company and its debt structure.

That said, in most private firms a detailed assessment often shows that the owner’s house is at risk, even if this is not explicitly the case. There is often therefore much to be gained by recognising this reality and converting highly-charged debt into a domestic mortgage. This allows you to benefit from the excellent rates and deals available.

Where this route is not viable, but the company does own commercial property, then significant savings can still be made where there is highly-charged debt (e.g. overdrafts) which may be converted to commercial mortgages.

Simply suggesting to your bank that you might move your account can often produce useful savings. Converting overdrafts to mortgages can be cost-effective at surprisingly low levels, and for larger cases the savings can be very significant indeed. In extreme cases several percentage points may be shaved off the overall interest rate.

This information is intended for general guidance only and advice relating to any of these areas should be sought.

Your home may be repossessed if you do not keep up repayments on your mortgage or other debt secured on it.