Invoice Finance
What is it?
Invoice finance is a way of financing your business by giving you a % of your outstanding invoices as soon as the goods/service has been delivered as opposed to waiting for your customers to pay. This allows you to then pay your bills (wages, suppler payments etc) before your customer pays you which is often necessary in a growing business.
The Benefits
- Funding that grows with your business – releasing more cash as you need it
- Uses security in your business meaning limited personal security (if any)
- Use finance for any purpose
- Can have credit insurance bolted on
- Tailored products for specific circumstances (confidential vs credit control function)
There are four main variations of Invoice Finance
Factoring
The lender will not only lend the money but will also carry out credit control and maintain a sales ledger. Debtors are aware of the lender due to the credit control and also a notice of assignment on the invoice
Confidential Invoice Discounting
For more sophisticated businesses where a sales ledger and credit control is already being done competently. This is the lowest touch where administration is completed by the client still
Chocs
A hybrid of the above two. This is a disclosed facility but the client is allowed to carry out the credit control
Construction
Can be any of the above three but is into construction companies where staged invoices, applications for payment and contracts are prevalent. The lender can fund applications but with the additional risk, additional due diligence is undertaken
Asset Finance
What is it?
Asset finance is a facility where an asset financier takes a fixed charge over a specific asset or assets to provide funding into your business. The amount of funding will depend on the asset in question, its residual value and the ease in which a finance company could sell it on. Asset finance can be used to buy new assets or even to refinance existing ones:-
Asset finance can be used to buy new assets or even refinance existing ones:
New Assets
This is used for the purchase of new assets into the business – it may be a new piece of engineering equipment, a fleet of vehicles or even an office fit out. A company can pay for it’s asset(s) over a period of time
Refinance
This is effectively a loan into the business that can be used for all manner of things. The lender will take a charge over existing assets in the business as collateral for the loan.
The Benefits
- Improves cashflow as you can pay for the asset over a period of time as opposed to up-front
- Allows businesses to grow more quickly than they would be able to organically
- Little or no personal liability as the lender takes the asset as security
- Finance agreements can often be tailored to the business’ needs, with flexibility on both the term and repayment schedule
- Businesses can finance almost any asset – it doesn’t need to be a piece of machinery or a vehicle (hard assets), it can be software or even office furniture (soft assets)
Merchant Cash Advance
What is it?
Merchant cash advances (MCAs) are one of the most innovative products in alternative business finance. The concept has only existed for a few years, but it’s already proving very popular in the retail and leisure sectors. Put simply, an MCA uses your card terminal as security for borrowing — perfect for businesses without many assets, but who have a good volume of card transactions every month such as retailers and pubs/restaurants.
Repayments are taken directly from the terminal provider and are taken as a percentage of card takings, meaning it is perfect for seasonal businesses as you repay a percentage of sales as opposed to a fixed amount.
The Benefits
- Frees up other forms of finance. Because no assets are used, it allows a business to use those other assets for additional forms of finance
- Whilst other forms of finance can only be accessed with 2 years+ trading, you can obtain an MCA much more quickly
- Repayments taken directly from the terminal provider so you never see the money in your bank account so never miss it
- Flexible in that repayments are in line with sales
Commercial Mortgages
What is it?
In simple terms, a commercial mortgage is the business form of a personal mortgage. The mortgage is a long-term loan taken by the business which is secured on a specific property or properties. With many different commercial mortgage lenders and literally hundreds of different commercial mortgage products, selecting the right one may seem confusing, but that’s where an experienced commercial finance broker can really help. Buying a commercial property for rental purposes or for your own business to trade from can be a sound investment, but as with all big decisions, it’s worth considering all the options before you jump in.
The Benefits
- An investment into your future – if a mortgage payment is the same as your lease or you can earn more in rent than your mortgage (if renting the property) then you will repay the mortgage and at the end you will own the property outright.
- Much longer term than with other forms of finance meaning you can borrow a large sum whilst keeping monthly payments low.
- If borrowing on an existing unencumbered property, you can borrow significantly more than you would be able to without the property as security.
HMRC Funding
What is it?
A HMRC loan is an unsecured business loan designed specifically to pay your HMRC VAT or corporation tax liability. This allows you to distribute your firm’s tax bills evenly over the year with manageable monthly payments instead of having to pay a large sum every three months or at the end of a year – If you’re a growing business it’s likely that you could always make better use of your cash than send it to HMRC.
To take advantage of this funding all you need to do is supply the relevant tax bill with your last filed accounts and we can do the rest for you! The lender will typically pay HMRC directly on your behalf and you would then pay monthly repayments to the lender.
The Benefits
- Obtain supplier discounts by using the funds to pay creditors early
- Use the retained cash to fund new orders and business opportunities
- Help smooth out cash flow pressures from other areas of your business
- You can use this every quarter resulting in a revolving working capital pot
- Customers needing longer payment terms
- Often no personal security taken
Credit Insurance
What is it?
Credit insurance gives business owners peace of mind to grow their business whilst removing the risk of non-payment through insolvency. An insurer will provide limits for all customers and if that customer falls into liquidation, the outstanding invoices to that customer are covered through the insurance.
The Benefits
- Protection - Ultimately, the policy is there to quickly replace money lost through bad debt
- Growth - It facilitates expansion with security and allows you to deal confidently with new clients and increase credit lines to existing ones
- Funding - Helps in securing finance as funders are confident that the business will not have a loss as a result of a bad debt
- Profitability - Improve profitability by safely increasing your exposure to more customers
Bridging
What is it?
Bridging finance is usually a type of short-term secured loan that can be used in property transactions or trading businesses. It’s best thought of as a temporary loan which gets you from A to B, until you can either clear the loan in full or secure a more permanent form of finance. That’s where the “bridge” idea comes in – finance bridging a gap to get you from one place to another.
Lenders look at 3 key things when they are assessing a business for bridging finance:
Credit Rating
This is the credit rating of the borrower using credit reference agencies such as Experian.
Security
This is an assessment of the property used as security – what is the value of it normally and what is the value of it in a forced sale over a reduced selling period (these can change dramatically depending on lots of factors such as location).
Exit
The exit is how the borrower plans to repay the lender when they are at point B – usually through refinancing onto a more conventional mortgage or the sale of the asset which realises it’s value and repays the lender, hopefully leaving the borrower with a profit!
The Benefits
- Funding that grows with your business – releasing more cash as you need it
- Uses security in your business meaning limited personal security (if any)
- Use finance for any purpose
- Can have credit insurance bolted on
- Tailored products for specific circumstances (confidential vs credit control function)
Business Loans
What is it?
A business loan does what it says on the tin. The lender advances a set amount at inception which is then repaid using fixed or variable monthly repayments over a set period of time. The parameters for the loan are set at the outset and are complied with throughout the term of the loan. Whilst what it is, is relatively simple, there are two important sub-categories in business loans which are important to understand:-
There are 2 main variations of business loans:
Unsecured Business Loan
Unsecured business loan – No tangible security by either the business or individual and is secured via an unsupported personal guarantee from the owner(s)
Secured Business Loan
Secured business loan – As the above but is secured against something more tangible like a 2nd charge on a home residence or the business unit. This is often less expensive than the unsecured option
The Benefits
- Making capital and interest repayments mean that you are repaying the debt as opposed to revolving facilities where you only pay interest and are left with the debt remaining
- You can use the proceeds for absolutely anything!! Rarely restrictions are put in place for this so you can use to purchase stock, pay off a minority shareholder, pay taxes, buy another business – literally anything you want!
- Often only a personal guarantee is required, leaving the business assets to be used elsewhere and personal assets remain unencumbered
- A set schedule of repayments make planning easier
Development Finance
What is it?
There are many, many types of development finance but in essence it is a loan that is given to contribute toward the purchase of land or a building and the cost of the development of the land or the building. The lender will take a charge against the title and sometimes on additional property to make up the security depending on the amount that the borrower wishes to borrow. Most development finance facilities are set up to allow monthly interest charges to be added to the loan facility as opposed to being paid monthly.
The interest is then repaid when the loan is redeemed (usually once the development is completed and the properties sold or refinanced onto commercial mortgages). Having the interest added to the facility takes pressure off the developer so that they can concentrate on the development.
The Benefits
- Allows somebody to develop without having the cash themselves to do so
- Generally very profitable for the developer
- Interest can be rolled up until the end, meaning no financing costs through the development
- Costs are charged monthly so the quicker you work, the less you pay