Trading Business Finance
Best categorised as the finance or lending needed by a normal trading business, there are loads of options with businesses often finding that the real solution is a combination of different lending vehicles. Here are the main options and the outline details on each.
Unsecured Business Loans
Unsecured business loans are loans to trading businesses where there is no tangible security required. Normally a directors personal guarantee is required but there is no charge over property of other assets.
Typically the following is available from unsecured business loans;
- From £5k to £250k
- Terms from 3 months to 5 years
- Normally done on a fixed rate of interest starting at 6.9%
- Normally there are no early repayment penalties
- Sometimes you can overpay the loan and reduce it early
- Quick to arrange, an unsecured business loan can be completed in 48 hours with all paperwork being delivered by email
The advantages to using this type of finance is that it is quick to arrange and relatively well priced. The interest cost competes well with high street lending under £25k. What you should note is;
- High street banks generally want you to put up security for business loans over £25k – With this option you don’t need to
- If you don’t have security then the banks will look to the Enterprise Finance Guarantee Scheme – Lending under this scheme is falling
- It can take weeks to get an answer from a bank and longer for paperwork to come through – This option is very quick
- Providing property security increases your personal risk, cost and can prevent you from re-mortgaging in the future – Your personal risk is lower and there are no barriers to re-mortgaging because you have a business loan
What do we do over and above source the lending? We can help with the any cash flow forecast, can obtain your latest P&L or Balance Sheet if you use a cloud accounting system like Xero. We will also liaise with your accountant or bookkeeper if the lender needs additional information.
Short Term Loans
Often a business will find itself needing to access short term cash, normally quickly or where more standard routes to finance are not available. Typically this option suits companies who have experienced losses, have trading issues, owe tax or have some adverse credit.
Where short term loans work well is with things like;
- HMRC bills that are owed and now pressing for payment. This can be corporation tax, PAYE or other owed tax
- VAT due. With VAT there is always another bill coming in 3 months time, so where VAT needs to be financed then it makes sense to structure repayments so it does not cause the same problem next time VAT becomes due
- Trading cash flow. There are times when an unsecured business loan or invoice finance is not suitable
- Seasonal businesses that need to order before peak periods or where outgoings are concentrated during low trading periods
Where short term loans come into their own is with the speed in which they can be put in place, as a guide;
- Answer within hours and same day drawdown
- From £5k to £250k available
- From 1 month to 24 month terms
What we do is collate the information you need very quickly, we will organise the information and run through everything with you inside an hour. After that we do everything needed and will revert to you once the loan is ready to drawdown,
Remember that losses, adverse credit or tight timescales can generally all be overcome.
Cash Flow Finance
Known as Invoice Finance, Factoring, Invoice Discounting or something else similar.
The big myth, and it is a myth is that these finance options are only used by businesses who are struggling. It is a complete myth as these finance options work best with growing companies who need a flexible and adaptable cash flow source. Bank overdrafts have a limit, a growing business will need greater access to trading cash flow. Overdrafts can stymie growth because they have a formal limit, cash flow finance does not have a set limit and will grow as you grow.
This type of cash flow finance uses your debtor book as the justification and security for the borrowing, meaning your trading figures are less important.
There are other things about Invoice Finance and Factoring that are often misunderstood;
- You do not have to enter a contract, you can do things ad-hoc and only when you need to
- You can finance specific invoices only
- You can pick and choose which invoices you want to raise finance against and choose how much you want to raise
- You can have complete control over what you decide to do, including how the invoice is collected
- You can do everything confidentially so your client does not know you are using any sort of finance
- Things can be completed quickly, often the same day as you apply
- Having one client or one large contract does not matter. Concentration risk is not an issue
What we really like about these finance options is that they break the mould, you can have flexibility, not be tied in and choose how you raise your cash flow finance.
Secured Business Loans
As the title says, this is raising finance for your business by offering security. The advantage to doing this is that the approval processes are much more flexible and give a greater allowance for businesses that have a story to tell.
The security can be any type of asset including cars, boats, items of value, or more typically property. With property it can be commercial or residential, owner occupied, tenanted or leased. It does differ from other property finance options.
It is a way to release cash and structure the repayments around what works for your business, this type of loan can offer;
- A quick answer, normally the same day or within 24 hours
- Easy process from start to finish
- Poor credit history or a lack of trading history can be allowed for
- Interest only periods, repayment holidays, staggered repayments or delayed start to repayments can all be worked into the agreement
- First, Second and Third Charges over property can be used
With this type of lending the lender will generally ask for documents to be signed at a solicitor to ensure you understand what you are committing to, this makes sense regardless of your experience in business and borrowing.
We will arrange everything for you, including liaising with your solicitor, your accountant and you throughout the process to make things as hassle free as possible.
Please note – All credit is provided on the terms offered by the individual lender. Ensure you understand the agreement you are entering and are comfortable making the repayments. It is always recommended that you seek legal advice before entering any credit agreement. Lenders do change their offering over time, all the information above is correct at the time of writing and all lending is subject to the individual lender’s criteria and sanction