The Six Months Before Your Loan Matures

Every facility in your letter has a date on it. A term loan expires, and whatever is outstanding on that day — the final instalment, or a balloon if the loan did not fully amortise — is due. A revolving facility comes up for annual review, and continues only if the review is satisfactory, on terms the bank may vary. An overdraft is on demand and has no maturity because it can end any day. In each case the bank's obligation to lend ends at the date, and what happens next is a new decision. The desk's word for the chance that decision goes badly is refinancing risk, and it was assessed when the loan was made; the term loan file shows the desk pricing a balloon precisely because it is a maturity the borrower will have to meet.

Some months before expiry, the facility surfaces on the desk's maturity list, and a credit analyst opens the file before anyone calls you. They read the twelve months of packs you sent, the covenant record, the account conduct, and the difference between what you forecast at the last review and what arrived. They check the bank's current appetite for your industry and its current pricing, both of which may have moved since the loan was written. And they form a view — renew as is, renew with changes, or not — that the relationship manager then carries into the conversation with you. By the time the bank raises the maturity, the desk has usually decided what it would like to happen. The six months are your chance to be part of that decision rather than the recipient of it.

The intervals are a rhythm, not a rule; what is fixed is the order. The decision comes before the pack, the pack before the ask, the approval before the documentation. Every month lost at the front is lost at the back, where the last two months are consumed by things — a valuation, a security document, a condition precedent — that take their own time and cannot be hurried. Preparing an Application is the pack; the annual review is the meeting the pack is for.

The review pack, with three things added. What has changed since the loan was written — in the business, in its customers, in its owners — told by you rather than found. The forward view, with the ask attached: what you want the facility to look like for the next term and why the numbers support it. And, for a balloon, the plan: cash on hand, a refinance already approved, an asset sale with a date, or a request to term it out, with the cover arithmetic that shows the new instalments inside the cash flow through a bad year. A borrower who arrives with the balloon plan is asking the desk to confirm a decision. A borrower who arrives without one is asking the desk to make it, and desks make it conservatively.

Renewed as it is. The most common, for a business much as it was. Expect the pricing to be reset to the bank's current margin for your grade, which may be higher or lower than the last one, and check the covenant definitions did not quietly change with the new letter. Renewed with changes. A shorter term, a higher margin, amortisation where there was none, a new covenant, a guarantee where there was none, more frequent reporting. Each is the desk saying what it saw in the file, and each is negotiable in the way the facility letter describes — before signing, not after. Not renewed. The bank will say it in its own language: it would like to see the facility repaid over a period; it will renew for a short term while you make other arrangements. It will usually give time, because an orderly exit is better for the bank than a disorderly one, and the time is for a credit-approved offer elsewhere or a plan the bank will accept. When the Bank Says No is what the no usually means, and what it needs to become a yes.

Maturity is the cheapest moment to change banks, because there is no break cost on money that has reached the end of its term and no facility to unwind early. It is also the moment the new bank knows you have a deadline, so the process should start early enough that the deadline is not visible in the negotiation. Do not tell the old bank until there is a credit-approved offer with its conditions, not an indicative term sheet; and expect the new bank to want your current facility letter, your covenant record, and the reason you are leaving — some reasons travel well and some do not. Refinancing and Switching Banks is the whole of that decision, including what leaving costs before it saves.

Assuming renewal, because it always has been. Leaving it to the relationship manager, who carries the conversation but does not make the decision. A balloon with no plan, met on the day from the overdraft — which turns a term loan into hardcore at an overdraft's price and hands the desk exactly the file it did not want to see. Starting the alternative at thirty days, when the other bank's process cannot finish and the old bank can see that it cannot. And silence: a maturity approached without a word from the borrower is read as a borrower who has not noticed, or has noticed and would rather not talk, and neither reading helps. The desk would rather have the conversation six months early than one week late, and so, on the arithmetic, would you.