It could be you simply don’t get the time to do so, or simply don’t realise that there are potential savings to be made. However, according to James Macfarlane of HLB Debt Advisory, there are substantial savings to be made in reviewing your loans.
“You need to really look at your debt structures and rates relatively regularly,” James tells My Business.
Why bother reviewing your loan rates?
The reason is simple: in the current economic environment, where banks are making multiple increases in the rates they provide on loans outside of any movements by the Reserve Bank, loan repayment costs can climb quickly without you even realising it.
“I’ve saved people up to one per cent on their rates … one per cent, if you’re borrowing a few million, is $30,000 a year ... that’s half a staff member.”
James says that one reason business owners put off reviewing their loans is that switching providers is put in the too hard basket. Yet switching lenders to get a better rate is not always necessary.
“They often stay with their existing funder because to move is too hard, but you’ve got to provide a level of competitive tension to ensure that you get the best rate,” he explains.
How often should you review your loans?
Having identified why it can be beneficial to review your loans, My Business asked James how this should be done regularly.
“Within the commercial market, you generally set your deals every three years – so you should be doing it every three years, at the most,” he says.
“More regularly if you can, but everything three years [at least], it should be looked at.”
Make sure you have the right type of finance
Another common problem for SMEs, according to James, is having the wrong type of finance in place.
“Mak[e] sure your debt is the right type of debt, between working capital and fixed debt: lots of businesses get that quite mixed up,” James says.
“What that means is you can have too much working capital there, which banks usually charge more for, and not enough fixed.”
He says this is a particular problem for fast-growing businesses, where inaccurate forecasting leads to a sudden capital shortfall.
“Look at your goals three years out and know how much debt you’re going to need as you go forward,” says James.
“So many people get to a point where cash is tight, how did they get to this situation? When you go in, it’s easy to see – they’ve grown a lot, it’s just chewed up cash. They didn’t have enough flex in their debt facilities to allow that growth, and then suddenly cash is tight.”