Embarking on the journey of deciphering financial support for your business? The decision between a commercial broker and a debt advisory service can be pivotal. While these terms might seem interchangeable, they operate in distinct realms of the business finance landscape. 

What is a Debt Advisory? 

In recent years, debt advisory services have gained prominence in Australia, particularly for larger companies navigating capital raising and finance negotiations. But, should you choose a debt advisory or a commercial broker when seeking a business loan? 

Deciphering Debt Advisory: 

Typically sought by large corporates, medium-sized businesses, and high-net-worth individuals, a debt advisory provides guidance on critical funding decisions. Their goal is to minimize financial risk while safeguarding business profitability. However, it’s crucial to note potential exploitation, especially for businesses in dire straits. 

Debt Advisory vs. Commercial Mortgage Broker: 

Opting for a debt advisory makes sense for substantial businesses with turnovers ranging from $10-20 million annually. Their fees can be significant, and they often overlook businesses with turnovers less than $10 million. For smaller enterprises using residential property as collateral, a commercial broker offers a more economical choice. 

Roles of a Debt Advisory: 

Similar to a commercial broker, a debt advisory evaluates the financial needs of your company, negotiating and sourcing finance. However, with a team of advisers, they conduct a comprehensive business health check to identify funding gaps and potential debt restructuring or refinancing. 

They typically offer: 

• Analysis of Company Position: Ensuring capital sufficiency for long-term goals. 
• Negotiation of Finance Terms: Securing favorable terms and interest rates. 
• Debt Facility Structuring Advice: Providing guidance on structuring existing debt facilities. 
• Recommendations for Finance Options: Offering insights into invoice discounting, term debt, equipment finance, and business overdrafts. 
• Strategies for Capital Raising: Planning for mergers, acquisitions, and significant capital expenditure. 
• Negotiation of Financial Covenants: Facilitating discussions with financial providers. 
• Cash Flow Projection Enhancement: Building strategies to reduce credit rating and interest margins. 

Understanding “Restructuring”: 

Debt advisories may opt for restructuring existing debt facilities, negotiating with lenders to alter interest rates, fees, or loan terms. Refinancing with another lender or converting debts into equity are potential strategies, particularly for businesses with substantial turnovers. 

Benefits of Debt Advisory: 

• Business Acumen: Debt advisory professionals often have business experience, enhancing their ability to assess needs through thorough financial modeling. 
• Diverse Funding Sources: Access to a broad spectrum of fund providers, extending beyond major banks to international financial entities. 

Considerations and Drawbacks: 

• Seeking Desperate Companies: Debt advisories often work with financially distressed companies, potentially affecting their impartiality. 
• Regulatory Differences: While mortgage brokers adhere to stringent regulations, debt advisory services may not be subject to the same requirements. 

Choosing a Debt Advisory: Simple Guidelines 

• Seek Professional Advice: Consult an accountant or solicitor before engaging a debt advisory. 
• Avoid Pressure: Refrain from signing agreements under financial stress. 
• Check Qualifications: Verify the qualifications and licenses of the advisor. 
• Transparent Commissions: Be cautious if advisors are hesitant to disclose commissions or “kickbacks.” 
• Negotiate Fees: Work with a solicitor to negotiate fees, including any pro bono arrangements. 

Navigating the realm of debt advisory becomes less daunting when armed with simplified insights and guided by prudent considerations.