RSS feedsThe credit crunch is now into its second year and the landscape of business finance is changing. Most banks tell us that they are still open for business but the criteria they are looking for have changed.
Stricter lending requirements mean some banks are only dealing with low risk customers and some businesses are finding that the traditional funding options are no longer available. For many businesses this is a serious problem, but there are alternative funding options available if you know where to look. Some bankers are keen on the ‘quirkier’ type of deals and there are numerous alternative financiers.
There are many different products available depending upon the situation. If your clients have a profitable business, more options are available. But even if it is not profitable, there are possibilities out there. Financiers are keen to back strong management teams with a proven track record and good prospects.
The key is to have a clear business plan and appropriate forecasts. Specialist debt consultants can help with this. These advisers are experienced in this field and understand what financiers are looking for. They can review or help prepare a business plan and advise on likely sources of funding. They will also have relationships with financiers and can arrange those all-important meetings. You should be able to refer your clients to a specialist.
In the current economic climate it is important to have numerous different sources of finance available. With careful financial planning, businesses can unlock these alternative sources of funding, which can see them through the credit crunch. The following are just a selection of some alternative funding options available.
Small Firms Loan Guarantee Scheme
Loans arranged under the Small Firms Loan Guarantee Scheme (SFLGS) are made by banks and a premium of 2% is paid to the Department for Business, Enterprise and Regulatory Reform (BERR) for providing a guarantee. There are a number of restrictions and the maximum loan is only £250,000.
Invoice discounting
Advances are made against the value of invoices, typically 80-90%. This is not the cheapest way of raising finance but it is one of the most flexible. As the business grows, the facility grows. Conversely, when revenues fall, the facility reduces. This type of borrowing is more appropriate for manufacturers, distributors and service providers than retail and cash businesses or those allowing returns and refunds.
Leasing
Businesses can use the underlying value of their assets, rather than just depend on their past financial performance, to support an application for a loan. It is possible to raise finance for all tangible asset types, for example, most types of stock, plant, machinery, vehicles, IT, computers, servers, printers, telecoms and software.
Payroll funding
It may be that businesses only need a short-term loan for working capital, an asset purchase or deposits on asset finance deals. The credit limit of payroll funding loans can cover up to two times monthly gross payroll.
Trade finance
Trade finance provides upfront funding for confirmed sales orders. Purchase order financing can fund raw materials.
Asset-based lending
A business loan is secured on assets, including stock and even brands. Access to a revolving credit facility may be provided on the total value of assets.
Private investment
There is plenty of money out there looking for investment. Private investors still remain hungry for good business opportunities, particularly if the investment can be made through the enterprise investment scheme.
Clearly not all of these options are suitable for every business but there are many different avenues available. If clients need funding then speak to them as soon as possible and you should be able to refer them to specialists and financiers who are keen for their custom.
If they have a sound business then clients’ alternative funding options should help them find finance, even if the traditional avenues are cut off.
Don’t panic
Speak to specialist debt consultants. Not only can they outline your clients’ options, they can put them in touch with potential financiers.
Would be financiers will not judge a business purely on profitability. Make sure you can provide a coherent plan, that your clients can show they have considered the impact of the downturn and have a clear idea of how to grow and improve the business. Financiers are attracted to strong management.
Don’t panic. The temptation is to seize the first opportunity that comes along. However, it is important to weigh up whether it is the right option in both the long and short term.
David Cox is a partner at
haysmacintyre
