Raising debt finance

Debt finance 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.

Download our Whitepaper on 'Funding Options'

Leasing/sale and lease back

Almost anything can be leased, from cars to office equipment. There is an endless list of assets that can be financed, ranging 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 through to air-conditioning, radios and tills. 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.

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 already purchased 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 which 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.

Click here to download the Leasing and HP datasheet.

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: [email protected]

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Trade finance and asset-based finance

There are many specialised types of finance available.

Trade finance provides upfront funding when you need to buy stock or materials to service confirmed orders, an ongoing supply of cash against invoices raised and it can 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 for:

  • Buying goods.
  • Buying goods and selling them.
  • Buying, selling and moving goods.

If you have a confirmed order but do not have the funds to fulfil it, the lender will provide the upfront funding to complete that order. It will pay your suppliers for you and then invoice your customers once they have received the goods. The lender will then refund the money 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.

Purchase order financing is 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. The purchase orders are then assigned to the lender. After the orders are filled payment is made to the lender. The lender then deducts its costs and fees and remits the balance to the company.

Stock finance can be used to overcome stock shortages. The stock does not have to be pre-sold. Generally, this works best where the stock is fast moving.

Asset backed lending is 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 something between 30% and 70%.

Floor plan financing is available for certain industries which require significant high-priced finished goods inventory such as automobiles, refrigerators, washing machines, televisions and stereo systems. These goods 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'.

Download our Whitepaper on 'Trade and Stock Finance'.

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: [email protected]

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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 either fixed term or flexible and will usually be secured by a charge over the company’s assets or by personal guarantees from the directors.

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Debt is the most common source of finance for management buyouts (MBO) and management buy ins (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, plant and machinery and business assets, alongside borrowing against the debtor book and further cash release against stocks or confirmed orders.

In addition, there would be an expectation that management teams will be introducing capital (equity) into the process.

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National Loan Guarantee Scheme (NLGS)

The NLGS is a £40bn government scheme to try to boost bank lending to UK small and medium enterprises (SMEs) that was launched in 2012 to reduce the cost of business loans, hire purchase agreements and commercial leases.

Under the NLGS, SMEs can access loans with interest rates one percentage point lower than those available outside the initiative.

UK firms with an annual turnover of up to £50m can participate in the scheme, as long as they are not in financial difficulty.

The government guarantees £20bn of the bank’s own borrowing, thereby allowing the lenders to borrow more cheaply than they normally do. The banks then pass on this cheaper funding to SMEs in the form of lower interest rates.

Participating lenders include Aldermore, Barclays, Lloyds TSB, Royal Bank of Scotland and Santander.

In addition to the NLGS the government has introduced the Enterprise Finance Guarantee which you should also consider, along with invoice discounting or factoringcommercial mortgagesCrowdfunding may also be an option

To find out more please contact:

Richard Olsen on 0203 327 0567 or email: [email protected]

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