Can a Fractional FD Help Us Refinance Existing Facilities on Better Terms?

Many UK businesses are paying more for their debt finance than they need to. Facilities that were arranged years ago — when the business was smaller, its track record shorter, or interest rates were in a different environment — may no longer reflect the company's current financial strength. Others are locked into products that no longer serve the business's needs: an overdraft funding what should be a term loan, an invoice finance facility with restrictive covenants, or multiple small facilities that could be consolidated more efficiently. A fractional Finance Director can identify these opportunities, build the case for refinancing, and run the process to secure materially better terms.

Why Businesses Pay More Than They Should for Debt Finance

Lenders rarely reduce margins spontaneously. Without active management of the lending relationship and periodic market testing, the cost and terms of your debt facilities tend to deteriorate relative to what the market would offer a business of your current strength. Several factors commonly lead businesses to be over-paying for their finance:

• The business has grown significantly since the facility was originally arranged, but has never renegotiated terms to reflect its improved risk profile
• The facility type is wrong for the business's actual needs — for example, using a costly overdraft for structural working capital that would be better funded by a revolving credit facility
• Interest rate hedging arrangements are no longer appropriate given changes to base rate or the business's risk tolerance
• Security arrangements are excessive relative to the current facility size — the bank is holding security it no longer needs
• The market has evolved and alternative lenders are offering substantially better terms than the incumbent bank
• The business's financial performance has improved sufficiently to command a lower risk margin than the lender is currently applying

Conducting a Facilities Review

The first step in any refinancing exercise is a thorough review of the existing facilities. A fractional Finance Director will examine every facility agreement, including interest margin definitions, fee structures, covenants, security arrangements, and break costs. This review establishes the true all-in cost of the current debt, identifies any issues that would need to be addressed in a refinancing, and creates a baseline against which alternative proposals can be assessed.

Many business owners have a general sense of their borrowing costs but do not know their effective all-in rate when arrangement fees, non-utilisation fees, and covenant compliance costs are included. The facilities review provides this clarity and typically surfaces several areas where cost or terms could be improved.

Assessing the Market and Timing the Process

Refinancing at the right time is important. The optimal moment to approach the market is when the business is performing well — management accounts are strong, cash flow is positive, and there are no impending covenant headroom concerns. Approaching lenders from a position of financial strength gives you leverage that approaching from a position of need does not.

A fractional Finance Director advises on timing, helps you prepare management accounts and forecasts that present the business in its best light, and designs a refinancing process that generates genuine competition between lenders rather than simply allowing the incumbent bank to refresh terms unchallenged.

"Our FD ran a competitive refinancing process across four lenders. We ended up reducing our interest margin by 1.25%, extending our facility by two years, and releasing a personal guarantee the directors had given years earlier. The total value of the exercise was well into six figures."

Running a Competitive Refinancing Process

The most effective refinancing processes create genuine competition between multiple lenders simultaneously. A fractional Finance Director prepares a comprehensive financial information pack — management accounts, forecasts, facility requirements, and a clear statement of objectives — and distributes it to a shortlist of lenders most likely to offer competitive terms for your specific business profile and requirements.

Managing multiple lender conversations simultaneously requires organisation and financial expertise. Each lender will ask different questions, request additional information, and move at a different pace. Your FD coordinates these conversations, ensures each lender has the information it needs promptly, and maintains momentum across the process to prevent it from stalling.

When indicative terms are received, your FD prepares a detailed comparison across all dimensions — interest cost, fees, facility size and tenor, covenant package, security requirements, and flexibility — and recommends the optimal proposal. This recommendation is based on total cost of funds over the facility life, not just the headline margin, which is where many businesses make comparisons that mislead.

Consolidating Multiple Facilities

Businesses that have grown through multiple financing events often end up with a fragmented portfolio of facilities — a bank overdraft, a separate term loan, an invoice finance facility with a different provider, and perhaps some legacy asset finance arrangements. Managing multiple lender relationships, compliance reporting obligations, and facility review timetables is administratively burdensome and can be financially inefficient.

A refinancing exercise presents the opportunity to consolidate these facilities into a cleaner, more efficiently structured package. This might mean combining the overdraft and term loan into a single revolving credit facility with a lower blended cost, or bringing the invoice finance into the main banking relationship to achieve better pricing and reduce administrative overhead. Your fractional FD designs the consolidated structure, models its financial benefit, and manages the transition from the old to the new arrangements.

Managing Break Costs and Transition Risk

Refinancing is not without costs or risks. Early repayment of fixed-rate facilities can trigger break costs. Transferring security between lenders requires legal work. And the transition period between facilities — where the old facility is being repaid and the new facility not yet drawn — creates a brief period of heightened liquidity risk that requires careful management.

A fractional Finance Director anticipates all of these issues, models the break costs explicitly so you can assess whether refinancing is net beneficial, manages the legal timetable to minimise the transition gap, and ensures the business's cash position is adequate throughout. For ongoing management of the new facilities once refinancing is complete, our article on liaising with banks and lenders explains how a fractional FD manages these relationships on an ongoing basis. And if the refinancing opens the opportunity to access additional capital, our article on raising debt finance covers the full preparation process.