For many construction businesses, having access to finance isn’t the problem.

Having the right finance structure is.

Short-term Business Loans can provide valuable capital when it’s needed, but large repayments over 12, 18 or 24 months can place considerable pressure on monthly cash flow.

This was exactly the situation facing one construction company that approached Principal Business Finance.

The business had an existing £100,000 Business Loan structured over 24 months.

Rather than simply continuing with the existing facility, we explored whether the borrowing could be restructured onto terms that better reflected the company’s current position and future plans.

The result?

We helped refinance the shorter-term borrowing into a new £150,000 Business Loan over 72 months.

This achieved three important objectives:

• Lower monthly repayments
• A better interest rate
• An additional £50,000 of capital

The additional funding could then be used to help the company complete existing construction projects, manage working capital and continue investing in the business.

It’s a good example of why businesses shouldn’t necessarily view an existing loan as something that simply has to run until the end of its original term.

Sometimes, restructuring existing borrowing can create an opportunity to improve cash flow and release additional capital at the same time.

The Challenge: £100,000 Over 24 Months

Construction businesses can have significant working capital requirements.

Even profitable projects may require substantial expenditure before the customer makes the corresponding payment.

A contractor might need to fund:

Materials. Labour. Subcontractors. Plant hire. Fuel. Deposits. Insurance. Site costs.

All before receiving the next stage payment.

Our customer already had a £100,000 Business Loan over 24 months.

The original loan had provided useful capital, but the relatively short repayment period meant the monthly commitment was substantial.

As the company continued to grow and take on projects, reducing that monthly commitment could free up cash for the actual operation of the business.

At the same time, the company required additional capital to complete jobs and continue investing.

Simply taking another short-term loan alongside the existing facility could have increased the total monthly debt commitment even further.

Instead, we looked at the bigger picture.

The Solution: Refinance and Raise Additional Capital

Principal Business Finance explored the commercial lending market to find a facility that could achieve more than simply replacing the existing borrowing.

We arranged a new:

£150,000 Business Loan

over:

72 months.

Part of the new facility could be used to refinance the existing borrowing, while the additional capital could remain available to the business.

By moving from a 24-month structure to 72 months, the repayment of the borrowing was spread over a considerably longer period.

The new facility also provided a better interest rate than the previous borrowing.

The combination of the longer term and improved pricing resulted in lower monthly repayments, despite the overall facility increasing to £150,000.

That created a very different cash-flow position for the company.

£100k to £150k: What Did the Refinance Achieve?

The objective wasn’t simply to borrow more money.

The refinancing created several benefits simultaneously.

1. Lower Monthly Repayments

Moving from a shorter 24-month loan to a 72-month facility allowed the borrowing to be spread over a longer period.

That reduced the company’s monthly debt servicing requirement.

For a construction company, that additional monthly headroom can be valuable.

Money that would otherwise leave the bank as a larger loan repayment can remain available to support:

• Materials
• Payroll
• Subcontractors
• Plant and machinery
• Vehicles
• Fuel
• Site expenses
• New contracts

Lower monthly repayments can therefore improve flexibility within the company’s cash flow.

2. Better Interest Rate

The new loan was also arranged at a better interest rate than the previous facility.

A business’s funding options can change over time.

Perhaps it has now been trading for longer.

Turnover may have increased.

Profitability may have improved.

Its balance sheet could be stronger.

Credit history may have developed.

More recent accounts or management information may present a stronger picture to lenders.

This means the facility that was available to a business two years ago may not necessarily represent the best funding it can access today.

3. An Additional £50,000 of Capital

Rather than refinancing only the existing £100,000 borrowing, the new facility was increased to:

£150,000.

This provided the company with additional capital to support its operations and investment plans.

For a construction company, £50,000 of additional liquidity could potentially make a significant difference when several projects are running simultaneously.

Why Construction Businesses Can Be Cash-Hungry

Construction provides a particularly good example of why turnover and cash in the bank are not the same thing.

A company could have a strong pipeline of profitable projects while still experiencing cash-flow pressure.

Imagine a contractor wins a £250,000 project.

Before receiving significant payment from the customer, it may need to purchase:

£50,000 of materials

and fund:

£25,000 of wages and subcontractor costs.

There could also be plant hire, transport, accommodation, insurance and other site costs.

The project might ultimately generate a healthy profit.

But the company still needs enough working capital to get from:

winning the job

to:

completing the work

to:

receiving payment.

Business Loans can potentially help bridge that gap.

Using Additional Capital to Complete Existing Jobs

One of the key purposes of the additional funding in this case was to give the business greater capital to support its existing work.

This can be particularly important where multiple projects overlap.

A construction business might have three profitable jobs underway simultaneously.

Each one could require materials, labour and subcontractors before the next customer payment arrives.

Without sufficient liquidity, the business may be forced to delay expenditure or carefully prioritise which project receives the available cash.

Additional working capital can potentially give the company greater flexibility to keep projects progressing.

Investing in the Business

The additional capital also gave the customer greater ability to continue investing.

Depending on the construction company, this could include:

• Recruiting employees
• Taking on additional subcontractors
• Purchasing materials in larger quantities
• Investing in marketing
• Improving systems and software
• Taking on larger projects
• Funding deposits
• Expanding into new areas
• Supporting general working capital

Where specific machinery, vehicles or equipment are required, Asset Finance may sometimes be a more appropriate way of funding those purchases rather than using the entire Business Loan.

The important point is to consider what each part of the funding is actually being used for.

Why Not Just Take a Second Loan?

When a business needs additional capital while already servicing existing borrowing, taking another loan can seem like the obvious solution.

But this can result in multiple facilities with:

Different repayment dates.

Different interest rates.

Different terms.

Multiple monthly repayments.

And potentially a much larger combined monthly commitment.

In some circumstances, consolidating or refinancing existing borrowing while raising additional capital can produce a cleaner structure.

Instead of:

Existing £100k loan + another £50k loan

the company may potentially be able to restructure the requirement into:

One £150k facility.

Whether this is possible will depend on lender appetite, the existing settlement figure, business performance, affordability and other factors.

Why the Loan Term Matters

The headline interest rate is only one part of a Business Loan.

The term can be just as important.

Consider the difference between repaying substantial borrowing over:

24 months

versus:

72 months.

A shorter term can mean the debt is cleared faster and may result in a lower total interest cost, depending on the pricing.

But it also generally means larger monthly repayments.

A longer term can reduce the monthly commitment, potentially creating more breathing room within business cash flow.

The trade-off is that borrowing over a longer period can increase the total interest paid.

For this reason, businesses should consider both:

Monthly affordability

and:

Total cost of borrowing.

In this particular case, moving to a longer term alongside securing a better interest rate provided the customer with a structure that better supported its current requirements.

When Could Refinancing a Business Loan Be Worth Exploring?

There are several situations where a business might consider reviewing existing borrowing.

Monthly repayments are putting pressure on cash flow

The business may be profitable but servicing a large short-term facility each month.

Additional working capital is required

The company may need further funding but doesn’t want to simply stack another loan on top of existing borrowing.

The business has become stronger

Turnover, profitability or trading history may have improved since the original loan was arranged.

Existing borrowing is expensive

The business may have taken finance quickly when fewer options were available.

The company has several facilities

Consolidating suitable borrowing could potentially simplify monthly commitments.

The business is preparing for growth

Reducing monthly repayments while releasing additional capital could create more room for investment.

Business Loan Refinancing Isn’t Always About the Lowest Rate

A lower interest rate is clearly attractive.

But it shouldn’t be the only consideration.

A refinance should be considered across the full commercial picture:

What is the new monthly repayment?

How long is the new term?

What is the total amount repayable?

Are there settlement costs on the existing loan?

How much additional capital is being raised?

What will that capital be used for?

A facility with a longer term may reduce monthly payments while potentially increasing the overall period during which interest is charged.

The value of the structure therefore depends on what the business is trying to achieve.

Could Your Business Be Eligible for Better Terms Today?

Commercial lending is not static.

The finance available to a company can change significantly as the business develops.

A company that originally borrowed when it had:

Two years’ trading history and £1 million turnover

may now have:

Four years’ trading history and £2 million turnover.

It may have stronger accounts, greater profitability and a better-established credit profile.

That can potentially open the door to different lenders, larger facilities, longer terms or improved pricing.

It can therefore be worthwhile reviewing existing business borrowing periodically rather than assuming the original facility remains the most appropriate option until maturity.

What Do Lenders Look at When Refinancing a Business Loan?

When considering Business Loan Refinance, lenders may review:

• Latest annual accounts
• Management accounts
• Business bank statements
• Turnover
• Profitability
• Existing borrowing
• Current loan settlement figures
• Monthly debt commitments
• Credit profile
• Trading history
• Purpose of additional funding
• Amount required
• Proposed repayment term

For construction companies, lenders may also want to understand:

• Current projects
• Pipeline
• Contract values
• Customer concentration
• Payment terms
• Retentions
• Subcontractor costs
• Working capital cycle

Presenting the commercial story behind the refinance can be just as important as presenting the numbers.

How Principal Business Finance Can Help

At Principal Business Finance, we work with a wide panel of commercial lenders and can help UK businesses explore funding for a variety of requirements.

This can include:

Business Loans

For working capital, investment, expansion and general business purposes.

Business Loan Refinancing

Replacing existing borrowing with a new facility where appropriate.

Debt Consolidation

Potentially combining suitable existing facilities into a more manageable structure.

Additional Working Capital

Raising more capital alongside a refinance where lender criteria allow.

Secured Business Loans

For larger requirements where suitable property or other security is available.

Revolving Credit Facilities

Providing reusable working capital for businesses with recurring short-term funding requirements.

For construction businesses purchasing vehicles, machinery or equipment, we can also explore Asset Finance alongside the Business Loan requirement.

A £100k Loan Became a £150k Opportunity

This case started with an existing:

£100,000 Business Loan over 24 months.

The customer didn’t simply need another loan.

They needed a better funding structure.

By reviewing the requirement and exploring our lender panel, Principal Business Finance arranged a new £150,000 Business Loan over 72 months.

The result was:

Lower monthly repayments.

A better interest rate.

£50,000 of additional capital.

And greater liquidity to help the construction company complete jobs and continue investing in the business.

It demonstrates an important point:

Refinancing existing business borrowing doesn’t necessarily have to be about reducing debt.

In the right circumstances, it can potentially allow a business to restructure its commitments, improve monthly cash flow and raise additional capital at the same time.

If your business is currently servicing a short-term loan, has several existing facilities or needs additional capital, Principal Business Finance can review the requirement and explore Business Loan and refinancing options across our commercial lender panel. Contact us on 01604217998, email info@principalbusinessfinance.co.uk, or enquire here.

All finance is subject to application, status, lender criteria and approval. Refinancing over a longer term may reduce monthly repayments but can increase the total amount of interest payable. Existing facilities may also have early settlement costs.