Who Should Be Looking to Refinance?

28 May Who Should Be Looking to Refinance?

Interest rates are once again at the centre of attention across the healthcare sector. With inflation still proving sticky and economic forecasts shifting regularly, many business owners are starting to ask a simple question:

Is now the right time to review existing borrowing?

For healthcare businesses, this is becoming increasingly relevant. Not because anyone can predict where rates will go next, but because many finance arrangements were agreed in a very different economic environment.

Go back to the years after the 2008 credit crunch. Lending was tighter, margins were higher, and borrowing was priced very differently to today. Then came a prolonged period of low rates, followed by Covid disruption, inflation spikes, and now ongoing uncertainty in global markets.

The result is that many healthcare businesses are still carrying finance that no longer reflects their current position.

In some cases, that creates an opportunity.

Why this matters now

Many business loans were structured between the credit crunch era and the Covid period, when risk pricing was significantly higher than it is today. Margins of 3.5% or more over base rate were not unusual.

At the time, these terms were appropriate.

But many of those same businesses have since matured. What may have started as a higher risk borrowing position is now often a stable, established and profitable operation with meaningful goodwill value.

Despite that, finance arrangements are frequently left unchanged for years.

Not deliberately, simply because day to day operations take priority.

However, in today’s environment, that “set and forget” approach can mean missing opportunities to improve cash flow or restructure debt more efficiently.

Who should be reviewing their finance?

There are a few clear groups who should be taking a closer look.

Businesses with older borrowing

If finance was arranged in the years following the credit crunch or before Covid, there is a strong chance the margin is higher than what is available in the current market.

Even a small reduction in rate can have a significant impact over time.

Established businesses that originally started from scratch

Many healthcare businesses that began life as start-ups or squat practices will now be in a very different position to when they first borrowed.

With trading history, profitability and goodwill now established, lenders may be willing to offer materially better terms.

Businesses using multiple forms of short-term finance

Short term finance is useful, particularly for equipment and upgrades. The issue arises when multiple facilities accumulate over time.

This can lead to high monthly repayments across various assets and agreements.

In some cases, consolidating or restructuring into longer term finance can significantly reduce monthly repayments and improve cash flow, sometimes by thousands per month.

Businesses planning growth or change

Refinancing becomes particularly relevant when businesses are:

• expanding premises
• adding capacity
• relocating
• acquiring another practice or clinic
• investing heavily in growth

At this stage, existing finance should always be reviewed alongside any new borrowing.

It is not just about the interest rate

A common mistake is focusing purely on headline rate.

In reality, structure is often just as important.

Extending term length, adjusting repayment profiles, or blending interest only elements can sometimes have a bigger impact on monthly cash flow than small changes in rate.

For example, a slightly longer term can reduce monthly repayments significantly, freeing up capital that can be reinvested into the business or used to strengthen personal financial planning.

In many cases, commercial borrowing can also be more tax efficient than personal debt, making the overall structure even more important than the rate itself.

Costs and considerations

Refinancing is not automatically the right answer in every case.

There are costs to factor in, including valuation fees, legal costs, arrangement fees and potential early repayment charges.

These need to be weighed carefully against the potential savings.

Sometimes the numbers work very well. Sometimes they do not.

A proper review should always focus on the overall financial outcome rather than just the interest rate headline.

How the lending market has changed

The lending landscape has evolved considerably in recent years.

Some lenders now offer more flexible structures, including:

• longer repayment terms
• reduced or waived fees
• simplified security requirements
• partially interest only options
• extended goodwill lending periods

These changes have created opportunities that were not widely available in the post credit crunch lending environment.

Final thoughts

This is not about trying to predict interest rate movements. Those forecasts will continue to change as global conditions evolve.

It is about ensuring that existing borrowing still fits the current reality of the business.

Many healthcare businesses are still operating with finance arrangements agreed under completely different conditions, whether that was after the credit crunch, during the low-rate period that followed, or in the uncertainty of the Covid era.

In today’s market, reviewing those arrangements is often a straightforward conversation, but one that can have a meaningful impact on cash flow, flexibility and long-term financial strength.

Want to find out more, please get in touch.