Two companies with similar results can get very different facility terms. The one that arrives with a clear purpose, a cash forecast and room under its covenants negotiates from strength.
This guide sets out when to start, what to prepare and which terms matter besides the interest rate.
When should we start?
Before the need is urgent. Start the conversation three to six months before a renewal, a large order or a capital project. Banks respond to preparation, not to urgency.
What do banks look at?
- Cash flow: whether operating cash covers interest and repayments.
- Security: what the bank can take and what it is worth.
- Management: the quality and timeliness of your reporting.
- Track record: how the account has been run, including overdrawn days and returned cheques.
What should the request pack contain?
- A one-page summary: the amount, purpose, structure and how it will be repaid.
- Audited financial statements for two or three years, and current management accounts.
- A 13-week cash forecast and a 12-month projection, with the assumptions.
- Ageing of receivables and payables, and the stock position.
- Existing facilities, security and covenants.
- Key customers and suppliers, and any concentration.
Which terms should we negotiate?
| Term | What to ask for |
|---|---|
| Pricing | The margin and the fees together, not only the headline rate |
| Tenor | A tenor that matches the use: short for working capital, longer for assets |
| Security | Security in proportion to the risk, and release as the risk falls |
| Covenants | Ratios you can meet with headroom, tested on audited figures |
| Flexibility | Room to move between facility types as the trade cycle changes |
What weakens our position?
- Approaching several banks with inconsistent numbers.
- Asking for funding without a repayment plan.
- Ignoring covenant headroom until a test date.
- Late management accounts.
What should you do after the facility is signed?
Keep a covenant and renewal calendar, send management accounts on time, and meet the relationship manager when results change, not only at renewal.