There will be occasions when it is necessary to renegotiate the amount of your loan, the repayment period, or the conditions such as interest rate or personal guarantees. Where the assets of a business are limited, anyone lending you money may seek the added protection of requiring the owner personally to guarantee the loan. In the case of limited companies, this is in effect stripping away some of the protection that companies are supposed to afford the risk-taking owner-manager.
The first step of a successful renegotiation is to convince your lender you can ultimately pay off the renegotiated loan. You must show lenders why it would be in their best interest to agree to a new arrangement. Showing them your business plan is the best way to achieve this goal.
These are the things to keep in mind when renegotiating with your bank:
Everything in business finance is negotiable and your relationship with a bank is no exception. Banks are in competition too, so if yours is being unreasonably hard-nosed, consider changing.
Items that can be negotiated include; the rate of interest (usually expressed as a percentage over the base rate), when repayments start (anything between immediately and several months to a year out), or what security is required to cover the loan.
If security is required you should first offer business assets as security.
If pressed to give a personal guarantee, set clear conditions for the guarantee to end. Otherwise the bank may try to retain the extra comfort of the security of a personal guarantee as part of your permanent banking arrangements.
Make sure the conditions of the financing are clear, as are any events that could allow the bank to exercise their rights. Any funds advanced by a bank will come with strings attached. These could include what and how much of that money can be spent on which particular assets. If the funds are advanced for stock and you use them to buy a new vehicle, however necessary for the business that may be, you will be technically in breach of your loan covenants.