Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsCommon Dangers in RefinancingWhen considering refi nancing, make sureyou understand all the implications beforechanging your facilities.What is the cost of paying out yourexisting debt facility?HINTEnsure that you haveundertaken sufficient reviewof your circumstances priorto making any commitmentsfor refinancing, as there aremany pitfalls that mayimpact any perceivedbenefitYour existing facility may have an “early repaymentpenalty” clause, which could outweigh any futureinterest savings. Other exit fees may include discharge of mortgage costs ifproperty is involved as security. Deferred establishment fees may apply.What will be the ingoing costs of the new finance facility?Changing to a new lender (as opposed to a new product with the same lender)will require additional costs such as application, documentation, valuation (tovalue your security assets), mortgage fees, stamp duty on a new mortgage andsettlement fees. If your new lender is keen to get your business, you may beable to negotiate a waiver of some of the bank’s internal costs as part of thepackage.Impact of security assets used to support multiple borrowingsWhen you are refi nancing, you need to be aware of how your existing fi nancingis linked to your security assets. For example, your existing bank may providean overdraft facility, using security over your residential property, as well as anEFTPOS or credit card facility and access to an automated payroll system totransfer funds into employee bank accounts. If you change your debt facilitiesto a lender that does not have retail facilities such as EFTPOS and credit cardprocessing, you may fi nd that you need additional security to guarantee thesefacilities.146chapter 7-13 p79-181 Eng.indd 1468/15/11 5:03:06 PM