Most companies start their refinancing process later than ideal, presuming that reducing rates and cost are a primary goal. Companies wait until they are within 6-12 months of their debt maturing or flipping to “short-term” on the balance sheet, and then scramble to secure new terms for a re-financing while their negotiating power evaporates.  

The best refinancing deals happen when you start preparing 12-18 months ahead of time. “Twelve months is the very minimum, but eighteen months is ideal,” explains Florence Hirner, relationship manager at Redbridge DTA. “This process is very time consuming. With interest rates always in fluctuation, the goal is to attempt to lock in rates at the beginning of an upward trend in the market.” 

Timing matters, but this is also about transitioning your relationship with lenders from reactive to strategic, allowing companies to pivot away from “scramble mode” in order to arrange the best re-financing conditions for their business. 

Step 1: Start with What You Don’t Know

Before you draft a single term sheet or call your first banker, ask yourself this question:  How do your current financing terms stack up against market benchmarks? Again, most companies operate in the dark here. They know what they are paying, but they have probably have minimal visibility as to whether they are getting a good deal or instead are leaving money on the table.  

The second question is equally revealing: Do companies know their rating with their bank? 

“Banks have a rating on every single client, but they usually don’t share it freely,” Florence notes.  

Most CFOs don’t know their current rating. And that information gap puts your finance team at a massive disadvantage during negotiations. Evaluating your credit profile and developing a supportive credit story will pay large returns as pricing is largely driven by risk perception. 

Step 2: The Refinancing Diagnostic

Think of this as your financial health checkup before the big procedure. A proper refinancing diagnostic examines whether your current capital structure actually serves your business needs. 

This diagnostic phase is about fully understanding what exists and what is possible. Maybe you need factoring facilities on your receivables. Perhaps your working capital could be optimized with supply chain financing. The point is to understand all options before negotiations begin. 

Many CFOs try to handle this internally, and that is often the source of their challenges. “Some teams have told us, ‘Oh, we already have the team for that,’ but that internal team only knows what they have experienced, often only touching financing every few years” Florence observes. “An advisor like Redbridge has the benchmarks needed to provide the key insight: ‘Am I getting great terms from my bank,’ or ‘Is there room to improve my terms.'” 

Step 3: Build Your Case with Financial Forecasts and Strategic Vision

Banks want to see your current financials as well as a roadmap of where you’re headed. This means having available  3-5 year cash flow forecasts, clear business plans with trajectory and risk factors, and a strategic vision that includes potential acquisitions or major cap-ex initiatives. 

Banks want a vision of your future because they are essentially betting on your ability to service debt over the life of the facility. The more concrete and credible your forward-looking story, the better terms you will be able to demand. 

Step 4: Optimize Before You Negotiate

Companies often get the sequence wrong. They go to their current bank, get an offer, maybe shop it around to one or two other institutions, then sign whatever seems reasonable. Quick, and easy, and unexpectedly costly! They believe that multiple offers ensure the best terms, but they are letting the banks set the benchmark at less competitive terms, as the banks know what their competitors will typically respond with. By telling the banks what you want, and supporting the credit story, the banks respond to your terms. 

The strategic approach from Redbridge: Decide what you want before you even approach lenders. This means having a clear view of your optimal target leverage, desired terms and conditions and facility size, understanding whether you want bilateral or syndicated facilities, considering accordion features for future expansion, and evaluating whether non-bank solutions make sense for your situation. 

“At Redbridge, we prepare everything and then draft a term sheet that is submitted to the banks or private lenders to start the negotiations,” Florence explains. By defining what you want upfront, you are controlling the narrative rather than reacting to whatever banks propose. 

Step 5: Create Real Competition

Once you know what you want, it’s time to create genuine competition amongst lenders. This involves strategically selecting institutions that have an appetite for your sector, your size, and your risk profile. 

There is often room for negotiations even after you receive initial terms. A second round of negotiation can usually drive the banks to improve their offers. You can continue the discussion with the banks, and then at some point when you feel you have reached terms that are appropriate, you decide to move forward. 

Keep Bank Profitability in Mind

Make sure you have a good understanding of exactly how profitable you are to each of your banking partners. A RAROC (Risk Adjusted Return on Capital) analysis gives you this x-ray vision into your banking relationships. 

RAROC is first and foremost a strategic decision-making tool. It allows you to see what banks earn from your relationships, understand which products are profitable for the bank, and compare banking relationships on a consistent, objective basis. 

This creates what Florence calls “a more balanced information environment between corporates and banks.” Instead of banks having all the data about relationship profitability, you finally understand the rules of the game. You know what a bank considers profitable, where the higher margin products and fees lie, and you can negotiate more effectively. 

The practical benefits are immediate: 

• Fair redistribution of business across your banking pool 

• Better anticipation of what each bank will expect during renewals 

• More transparent, structured, and less emotional annual discussions 

The Goal is to Build Ongoing Relationships

Having an ongoing relationship with an advisor (such as Redbridge) is crucial because your financing needs do not necessarily follow a neat 3-5 year cycle. You might need supply chain facilities, receivables financing, real estate acquisition funding, or help optimizing your existing capital structure between major refinancings. 

“Redbridge is an extension of the corporate finance team,” Florence emphasizes. “We are here to make the Treasury and Finance team look good. Our goal is to optimize the existing capital structure and help get the best terms and conditions in the market.” 

Having a partner that can understand your business, the current financing environment and can step in to save time and extend your resources will help to optimize financing and the growth opportunities available. 

Easy Next Steps

If you’re approaching a refinancing in the next 12-18 months, start with these two critical actions: 

First, get a scorecard on your current financing. Understand how your existing terms compare to market benchmarks. This baseline is essential for measuring any new proposals you receive.  

Second, get clarity on your bank rating. If you don’t know where you stand with your current banking partners, you are negotiating blind. You need insight from ex-bankers who understand how the banks evaluate credit. 

Third, have your advisor develop a RAROC analysis on your behalf, so that you have clarity as to the margins your bank(s) are earning on your business. 

All of these should happen before you start updating financial forecasts, before you draft term sheets, and certainly before you start talking to banks. You need to know where you stand before you can plot where you’re going. 

The companies that execute successful refinancings transform their banking relationships from reactive to strategic. And they build the foundation for optimized capital structures that support long-term growth. 

The question isn’t whether you need to refinance: it is whether you’ll do it strategically vs. scramble at the last minute and accept the consequences. The choice you make determines the terms you will receive, and the cost to your company along with the financial flexibility you have (or not have) for the next several years. 

Contact us today to schedule a free scorecard on your current revolving credit facility.