A company can meet every interest payment and still face a difficult financing decision when a large loan matures. The existing agreement may have been affordable, but replacing it depends on the terms available when repayment falls due. The new cost, the amount lenders will provide and the conditions attached can all differ from management's original expectations.
That makes the timing of debt an important part of financial strength. Two businesses with similar borrowings and earnings can have different exposures if one has several years to arrange funding while the other must replace a major facility soon. A debt total without its repayment schedule gives an incomplete picture.
For boards and finance teams, the task is to connect contractual obligations with realistic sources of cash. The aim is to identify financing choices early enough to compare them, while recognising that no refinancing plan guarantees market access.
Maturity determines when financing assumptions are tested
A fixed interest rate can protect a borrower from changes in that rate during the agreed period. It does not establish the price of the next loan. When the debt matures, the business may have to refinance at prevailing conditions or repay from another source.
The OECD Global Debt Report 2026 executive summary describes a shift towards shorter maturities by governments and companies seeking to limit the impact of higher long-term borrowing costs. The report identifies increased refinancing risk as a consequence. This is a market-level finding, not evidence that every individual issuer faces distress.
A shorter agreement can be appropriate when it matches the financing need or preserves useful flexibility. The tradeoff is that the borrower must return to lenders sooner. An attractive initial interest rate should therefore be assessed alongside the next funding decision it creates.
Management also needs to distinguish scheduled amortisation from a large final repayment. Gradual repayments reduce principal over time. A substantial amount payable at maturity can concentrate the funding requirement even when earlier payments were manageable.
Refinancing involves more than a new interest rate
The benchmark rate is only one component of borrowing cost. A lender also prices the borrower's credit risk and may charge arrangement or commitment fees. Security requirements, repayment terms and restrictions can affect the value of the agreement to the company.
Consider a hypothetical business refinancing £20 million. At an annual interest rate of 4 per cent, the simple annual interest expense is £800,000. At 7 per cent, it becomes £1.4 million, an increase of £600,000 before fees or changes in principal. These are illustrative rates, not current market quotations.
The funding amount can change as well. If lenders offer £17 million rather than the full £20 million, the company needs another source for the £3 million difference. A plan focused exclusively on interest expense would miss that requirement.
The timing of fees and repayments also matters. An agreement with a lower stated rate may require more cash upfront or a faster reduction in principal. Comparing alternatives requires an assessment of their complete cash obligations and contractual terms.
Earnings provide only part of the repayment capacity
A lender may use earnings measures to assess creditworthiness, but debt is serviced with cash. Receivables, inventory and capital spending can absorb funds that appear available in a profit measure. Taxes and other obligations also compete for the same resources.
IAS 7 Statement of Cash Flows provides the accounting framework for reporting changes in cash through operating, investing and financing activities. That separation helps readers see how the business generates and uses cash. A forward financing assessment needs to connect those activities with future obligations.
An illustrative manufacturer may report stable operating earnings while building inventory for a new customer. If the customer pays later than expected, the business may need additional working capital just as a loan approaches maturity. The operating opportunity and the financing pressure can occur together.
Finance teams should therefore examine the cash available after the expenditure needed to maintain operations. A forecast that assumes all investment can be stopped may overstate flexibility if essential equipment or contractual projects still require funding.
Build a schedule that captures the full obligation
A repayment calendar should identify when principal and interest are contractually due. It should distinguish different currencies and borrower entities, because cash in one part of a group may not be readily available elsewhere.
IFRS 7 Financial Instruments Disclosures, including paragraph 39 and its application guidance, addresses maturity analysis and the management of liquidity risk. The contractual maturity analysis uses undiscounted cash flows, which can differ from carrying amounts in the statement of financial position. Accounting disclosures and internal forecasts serve related but different purposes.
The internal schedule can be more detailed where management needs to act before a reporting time band ends. A facility maturing in eleven months may require a decision much earlier if documentation, approvals or an alternative transaction will take time.
Other demands deserve attention without being confused with ordinary debt principal. Leases, committed investment and potential collateral requirements can affect available cash. The purpose is to understand obligations that could fall close together, rather than simply collect every financial item into one unexplained total.
A credit facility is useful only when it can be drawn
An undrawn facility can support liquidity, but its availability depends on the agreement. Management needs to understand its maturity, permitted uses and conditions for borrowing. A facility that expires before another loan falls due cannot automatically be treated as a lasting solution.
The distinction between committed and uncommitted funding is relevant. An informal indication that a bank is willing to lend is different from an executed facility whose conditions can be satisfied. Even committed facilities need to be assessed against their terms.
Companies should also consider how a drawdown changes later obligations. Using a revolving facility to repay a bond may address the immediate payment while concentrating exposure to a bank group or shortening the time available for the next decision.
The assessment should identify funding dependencies clearly. If a plan relies on selling an asset, obtaining shareholder approval or meeting a particular financial test, those steps should remain visible. They should not be described as completed financing before the necessary conditions have been met.
Covenant headroom needs its own forecast
Loan covenants can influence financing choices before the final maturity date. A decline in earnings, an acquisition or another transaction may affect a contractual ratio. The calculation depends on the agreement's definitions and should not be inferred from a similarly named accounting measure.
The IFRS Foundation's announcement on long-term debt with covenants explains amendments to IAS 1 effective for annual periods beginning on or after 1 January 2024. They clarify the effect of covenants to be complied with after the reporting date on classification and improve related information. Classification does not itself remove future compliance obligations.
A business can calculate headroom under its central forecast and examine how plausible changes affect it. The analysis should use the relevant contractual definitions and testing dates. It may also need to consider restrictions on dividends, acquisitions or additional borrowing.
If a waiver or amendment may be required, management should understand the process and timing. Assuming approval without engaging the relevant parties can leave a financing plan dependent on a decision outside the company's control.
Stress tests should connect operating and financing pressures
Testing a higher interest rate alone can miss the circumstances that make refinancing difficult. Reduced customer demand may lower earnings, increase borrowing needs and make lenders more cautious at the same time. These effects can reinforce one another.
The IMF's January 2025 paper Corporate Sector Vulnerabilities and High Levels of Interest Rates examines corporate vulnerability and the transmission of interest rate increases. Its findings concern the conditions and data analysed in that paper; they are not a current prediction of default for a particular company.
An internal scenario might combine weaker sales, slower collections and less refinancing capacity. Management can then examine which responses remain feasible and when they would need to begin. The assumptions should be severe enough to inform a decision while remaining coherent.
A reverse exercise can also help. Instead of selecting a shock first, the company identifies the point at which available funding becomes insufficient and asks what circumstances could produce it. This reveals the assumptions on which the financing plan depends most heavily.
Earlier refinancing has costs as well as benefits
Beginning work early provides time to compare funding structures and address documentation. It can also reveal problems while operating choices remain available. That does not mean every business should immediately replace debt that matures several years later.
Refinancing ahead of need can create additional interest costs, fees or penalties. The company may pay for new funds while old borrowing remains outstanding. It may also give up favourable terms that are still useful.
A staged approach can distinguish preparation from execution. Management can assemble information, review agreements and discuss feasible options without committing to a transaction at an unsuitable price. The decision to proceed should reflect the value of greater funding certainty and the cost of obtaining it.
Potential alternatives also have tradeoffs. Equity can reduce debt but dilute existing owners. Asset sales can provide cash while reducing future operating income. Lower investment may protect near-term liquidity but weaken the company's ability to deliver its plans. These are commercial choices requiring company-specific assessment.
Currency can create another financing mismatch
A borrower earning most of its cash in one currency may face a different exposure when debt is repayable in another. An exchange-rate change can increase the amount of operating cash needed to meet the obligation even if the foreign-currency principal remains unchanged.
Management should assess the relationship between receipts and repayments over the relevant period. Export revenue may provide some offset, but its timing and reliability matter. A forecast receipt should not automatically be treated as equivalent to cash already available for repayment.
Hedging can alter the exposure, subject to the instrument and agreement. It can also introduce costs or collateral demands. Finance teams need to examine those conditions alongside the underlying loan. The objective is to understand the complete funding requirement rather than assume that a hedge or an international business presence removes the mismatch.
Reporting should explain what remains uncertain
Boards need a concise account of upcoming maturities, funding sources and the conditions that could alter the plan. They also need to know which actions are within management's authority and which require decisions by lenders or shareholders.
An update that states financing discussions are progressing should explain what stage has been reached. An initial conversation, an indicative offer and signed documentation provide different levels of certainty. Clear language prevents an optimistic process description from being mistaken for committed funding.
The same discipline supports external reporting, subject to applicable disclosure requirements. Investors can assess a financing position more usefully when assumptions and material dependencies are explained alongside debt totals. The appropriate level of disclosure will depend on the company and its obligations.
The strongest internal report is one that helps management decide what to do next. It identifies the point at which an alternative must be activated and the evidence needed to judge whether the original plan remains achievable.
Questions and answers
Does fixed rate borrowing eliminate refinancing risk
No. It fixes the relevant interest rate for the agreed period. Replacement funding at maturity can have different pricing, availability and conditions.
Is a large cash balance enough to assess liquidity
No. Some cash may be restricted or needed for operations, and obligations may arise before expected receipts. Timing, location and accessibility matter alongside the reported balance.
Should a company always refinance as early as possible
No. Early execution can improve certainty but also create costs. Preparing early and choosing when to transact are separate decisions.
Corporate debt becomes easier to assess when the repayment timetable is connected to operating cash and credible funding options. That analysis gives management a chance to address a gap before it becomes an immediate payment problem. A manageable interest bill today is useful evidence, but it cannot answer the next maturity on its own.
References
1. OECD — Global Debt Report 2026 Executive summary
2. IFRS Foundation — IAS 7 Statement of Cash Flows
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/
3. IFRS Foundation — IFRS 7 Financial Instruments Disclosures 2026 issued text
https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2026/issued/ifrs7.html
4. IFRS Foundation — IASB amends accounting standard to improve information about long term debt with covenants October 2022
5. International Monetary Fund — Corporate Sector Vulnerabilities and High Levels of Interest Rates January 2025