Pegasus - Raising Debt Finance

General

Debt finance also comes in many forms and the choice is usually determined by the type of security available

With debt finance you retain control of your business although you may have to give personal guarantees or debentures over the business assets.

Small Firms Loan Guarantee Scheme - SFLGS

Loans arranged under the Small Firms Loan Guarantee Scheme can be extremely useful when no other form of lending can be obtained because there is no security available. The loan is made by the bank under their normal commercial assessment terms and a premium is paid to the DTI for providing a guarantee (of 75%) which replaces the missing security.

The interest rate is set by the lender and the guarantee premium of 2% is paid separately to the DTI.
The maximum loan that can be obtained is £250k repayable over a period of between 2 and 10 years.
The loan can be drawn down in as many as 4 stages so long as each represents at least 10% of the full value and the full loan is drawn down within 2 years.
Capital repayment holidays are allowed and there is no limit on the length.
To be eligible a company must be trading for less than 5 years, and have an annual turnover not exceeding £5.6m.
There are certain restrictions such as exclusions for export, acquiring an interest in a business through share purchase or buying out a partner, and replacement of existing borrowings.
There are also exclusions relating to the type of business, covering the financial sector, arts, sports, ticket agents, tied pubs, transport, medical, land and property.

Small Firms Loan Guarantee Scheme loans can be very difficult to get approved. In general the Banks do not like the risks involved. You need to know what the Bank's expect from your business plan, how they will evaluate your application and what they will expect from the management team. An application can be turned down by one branch of a Bank and accepted by another branch of the same Bank. You need to know which manager in which branch of which Bank will be willing to take on the risks and hard work involved.

Pegasus Funding Resources not only has the experience you need but also the senior contacts within the participating Banks, so that your chances of success are maximised. Contact Pegasus today.

How to find the best Invoice Discounter or Factor for your company

Let us find the right Invoice Discounter or Factor for you:
A free service

Do you have the time or the experience to survey this complex market yourself?

Do you know the questions to ask and what is negotiable and what is not?

Do you know which companies to go to for your special requirements and circumstances?

Pegasus Funding Resources has a panel of over 25 different Factors and Invoice Discounters and have the experience and knowledge to get the best deal for you. We make no charges to you for this FREE service

We know who will:

Give the lowest discount rate over base
Give the highest pre-payment
Allow the highest level of concentration
Who has the lowest service fee?
The shortest contract period
Who does not ask for personal guarantees?
Who has the lowest termination costs?
Who will pay your existing termination costs for you?
Who does not ask for a commitment fee?
Who has the lowest setup/documentation fee?
Who will also offer you a SFLG?
Who allows additional overdraft facilities, even though they are not a bank?
Who offers trade and stock finance?
Who has the lowest client management ratio?
Who does International Factoring or Invoice Discounting?
Who has the most reliable and flexible service?
Who responds the quickest?
Who even takes the underwriters and credit controllers with them to client meetings?
Who does not insist on debt insurance?

Why should you use Pegasus Funding Resources?

We know what information the funders require, we have a large panel of over 25 companies to get the best deal from, we chose the best fit, we get indicative quotations from 4-5 organisations, and then chose the best 3 to introduce to you. During the client meetings we know the right questions to ask and we negotiate the terms downwards for your benefit. We then follow up with all parties concerned until the deal is completed.

Let your company benefit from our experience, let us do the work for you while you concentrate on your business and remember we offer this service free of charge.

Factoring/ Invoice Discounting

Advances are made against the value of invoices, typically 80-90% and while this is not the cheapest way of raising finance it can be extremely helpful for companies with rapid growth as the security will allow higher borrowings in line with the expansion.

The lender will carry out some due diligence, examining your accounts and carrying out a detailed analysis of your sales ledger history and credit control procedures. There is a spin off benefit in that it can help introduce credit control disciplines in to your business.

This type of borrowing is more appropriate for manufacturers, distributors and service providers than retail and cash businesses or those allowing returns and refunds.

Invoice discounting leaves the ledger in the control of the customer who collects payment and is responsible for credit control.

Under a factoring arrangement control is passed to the Factor who manages all aspects of the ledger. Invoices are marked as assigned and payment is made to the factor so some businesses find this less suitable.

What is Invoice Discounting?

Commercial Mortgages

This is a straightforward way of borrowing to finance the acquisition of commercial property.

Buying commercial premises can be a good investment. Owning a property gives your business stability, and the property itself can become a significant asset, you may even be buying a business that is tied into the property such as a hotel, public house or café. Commercial mortgages can be used for a number of purposes such as:

Constructing a new building,
Moving to new premises,
Expanding facilities
Modifying your existing accommodation

Funds of 70% and sometimes as much as 85% of the Market Value or purchase price can be advanced. The lender will often want to see three years good accounts. Higher Loan to Values (LTV's) may be achievable where you are buying as a sitting tenant.

Mortgages are usually for 15 years or more and it must be remembered that the property itself is at risk if payments are not made on time. Terms might include:

Fixed, variable or capped rates
Flexible repayments
Interest only loans with bullet repayments at the end of the term
Capital repayment holidays.

When the business circumstances are not standard it is possible to find lenders who will offer:

Bad Credit Commercial Mortgages
Self-certified Commercial Mortgages
Business Start-up Mortgages
Small-business Mortgages
Commercial Re-mortgages
Woman's Business Mortgages

Leasing / Sale and Lease Back

Almost anything can be leased from cars to office equipment; in fact if it can be moved or stamped with a serial number it can be financed. The finance is quick to organise and repayment is fixed over an agreed term. There are also tax benefits to leasing.
There is an endless list of assets that can be financed, from agricultural vehicles, all forms of land, sea and air transport, catering equipment, computers, software, furniture and fittings, sound systems, filming equipment, radio waves and Formula 1 motorcars to air-conditioning, radios and tills.
The best rates are offered where there is a good credit rating but even without this finance can usually be arranged.
It is even possible for a start up business with no trading history to secure a certain amount of asset leasing in order to fund the initial purchases of IT and office equipment.
If your capital is tied up in any equipment, machinery or vehicles that your company has purchased in the past, it can be released within as short a time as one week by selling the asset to a lender and leasing it back.
Sale and Leaseback is a simple and effective method of raising capital and can apply to most business assets. Capital can be made available within a few days and could even be used to reduce or remove your overdraft and other bank borrowings. No extra security is needed and fixed repayments can be spread to match your cash flows.

Trade Finance and Asset Based Finance

There are many specialised types of finance available:

Accessing Funds to Fulfill an Order: - Trade Finance provides upfront funding for confirmed orders, an ongoing supply of cash against invoices raised and then help with distribution. No matter what situation your business is in, there is a trade services solution to fit the bill. Trade Finance is essentially a pick and mix menu of solutions that you can access when required:
- buying goods
- buying goods and selling them
- buying, selling and moving goods
- If you want assistance buying goods and have a confirmed order but do not have the funds to fulfill it, the lender will provide the upfront funding to complete that order. They will pay your suppliers for you and then invoice your customers once they have received the goods. They will then refund the monies to you minus an administration fee. (Trade services solutions are tailored to each business so the fees will depend on the individuals own unique requirements but an approximate average is 5% of sales value)
- However, if you want assistance 'buying and selling goods, they will we provide the upfront funds to pay your supplier, but can also release up to 85% of the value of the invoices raised against those orders.
- And finally… if you want to buy goods, sell them and then move them - they can do this too! They provide a complete supply chain solution, marrying logistics with the finance solutions described above.
Purchase order financing: - used where the inability to finance raw materials to fill orders would leave a company operating under capacity. The asset-based lender finances the purchase of raw materials, and the purchase orders are then assigned to the lender. After the orders are filled, payment is made to the lender, and the lender then deducts its cost and fees and remits the balance to the company.
Stock finance: - can be used to overcome stock shortages and the stock does not have to be pre-sold.
Asset based lending: - a secured business loan where assets, including stock and even brands, are offered as collateral. Access to a revolving credit facility may be provided on the total value of assets. Advances vary on the type of asset with plant and machinery commanding up to 80% and raw materials down to 30%-70%.
Floor plan financing: - certain industries require significant high-priced finished goods inventory such as automobiles, refrigerators, washing machines, televisions and stereo systems. These are supplied on extended credit terms to retailers. Rather than purchase this expensive inventory outright retailers can go to a finance company for credit to purchase the inventory, secured by the product "on the floor".

Bank Loans and Overdrafts

It is generally difficult to obtain bank loans worth more than the current net worth of your business.

Overdrafts are quick and simple to arrange. They provide short term borrowing but can be withdrawn at any time.

Loans may be fixed term or flexible and will usually be secured by a charge over the companies assets or by Personal Guarantees from the directors.

MBO and MBI

Debt is the most common source of finance for MBO and MBI using all the assets of the business to secure borrowing to the maximum levels. It is usual to see a mix of products used, including a commercial mortgage or sale and leaseback on the premises and the business assets, alongside borrowing against the debtor book and further cash release against stocks or confirmed orders.

Trading Overseas

An export factoring service offers you a complete package to help you develop an overseas business profitably and with confidence.

Not only does the lender provide an immediate injection of cash against the value of outstanding export invoices but then as you raise an invoice, they can release up to 80% of the value of that invoice within 24 hours. The remaining 20%, less a small service fee, is paid once the customer pays. This means a business has access to an ongoing supply of cash linked to their sales. So, as the overseas business grows so does the amount of funding available.

In addition to the cash the lender provides, they also remove the hassle of dealing with overseas customers, by chasing and collecting outstanding invoice payments from overseas customers.

They will prepare and send out statements and telephone the overseas customers, always communicating with them in their language. They will also collect payments and maintain professional and detailed accounts of the transactions. They can also help in smoothing out the problem of fluctuating exchange rates by offering multi currency facilities, including overseas bank accounts for fast, low cost receipt of payments. 100% credit protection is also available.

Their services are tailored to each individual business so the fees will depend upon specific needs. There are two types of fee. The first is the cost of the money used, which is extremely competitive when compared with other forms of finance. The second is a service fee.

Unsecured Lending Based on Payroll Commitments

It may sometimes be necessary to look for niche funding solutions, for example to provide short term headroom in working capital, asset purchase, or deposits on asset finance deals.

The credit limit can cover up to 2 times monthly gross payroll.

Funds can be made available on an unsecured basis (subject to directors' fraud warranties) and can sit alongside all other funding as it requires no debenture. It is unlikely that companies with a negative Balance Sheet will be considered.

Costs will depend on the size of the facility but will include a one off set up fee in the region of 5% of the agreed credit limit with interest at 3-4% over base and a 1-2% monthly service charge based on average borrowings per month.

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