Asset finance leasing - XL Business finance

Obtaining business finance for a new start company.

March 9th, 2010

Obtaining business finance for a new start business is most difficult at the best of times. In the current economic climate it is even more difficult especially if you approach your local high street bank for funding. Anyone who has had the pleasure will realise  that many banks promise the earth and after providing expensive business plans, cash flow projections and numerous meetings deliver very little. And more likely than not if they can do something they will want to take a charge over property and the wife and kids. The good news however is that XL Business Finance has been helping many new start businesses obtain various forms of finance.

There are still many non bank owned financial institutions providing hire purchase and finance lease facilities for new start businesses. Providing that the directors are home owners with a bit of wool on their backs it may be possible to provide finance depending on the cost of equipment and the quality of the guarantor. Most finance companies will require a personal guarantee which says if the business doesn’t pay then the director as an individual will be liable. The directors must definitely be home owners with little or no adverse credit. If in doubt with your written permission we can do a personal  credit check on your behalf.

In addition invoice finance in the form of factoring should be relatively easy to obtain. Again providing the individuals as directors are relatively clean and the debtor book is of reasonable quality a decent locally based invoice factoring company will be able to provide you with cash against your unpaid invoices.

 Which finance company is best for your particular needs depends on the industry that you operate , your geographical location and your estimated turnover. Again XL Business Finance will be happy to assist you find the most suitable funding partner.

Is Leasing equipment cheaper than hire purchase

March 7th, 2010

Many businesses contact us assuming obtaining leasing facilities for new equipment will be a) easier to obtain and b) cheaper than a traditional hire purchase facility. The answer is monthly repayments and ease of obtaining credit is exactly the same. The only difference being slightly different tax treatment. Which finance facility is best for your business depends on your own requirements and preferences.

In both cases the supplier will expect full payout of their invoice and therefore the hirer will be repaying the full cost of the equipment plus interest wheher it is hire purchase or finance lease.  The differing tax treatment is as follows.

With hire purchase all the VAT is paid up front and at the end of the final payment legal title passes to the customer. The equipment is shown in the customers balance sheet as an asset with a corresponding liability for the hire purchase element. The asset or equipment  is written down on a reducing balance basis and as  much as 50% of the capital cost of the equipment can be claimed  in the first year. Therefore  hire purchase may be more tax efficient in the first year especially if the business is making large profits.

With finance lease the vat is spread over the term of the lease agreement therefore from a cash flow point of view it can help businesses that are short of cash. Instead of claiming writing down allowances the monthly payment is offset in the profit and loss account and as such the full taxable benefit is obtained in exactly the same number of years of the term of the agreement. The big disadvantage of a finance lease facility is that the hirer cannot get direct title at the end of the agreement. A finance lease agreement will kick into secondary or peppercorn rentals usually the equivalent of one months payment on an annual basis. Title is usually obtained by selling the goods to a third party and retaining 90-95% of the sale proceeds.

Grants for Business Investment

March 3rd, 2010

If your business is planning to invest in capital assets (ie plant and machinery) and/or new staff for expansion, rationalisation or diversification then your business could be eligible for a grant. If the project is yet to start and the your business serves or plans to serve more than a local market than European Grant monies may be available. XL Business Finance has teamed up with a specialist firm of chartered accountants to provide a free assessment of your eligibility for a grant. The initial assessment is absolutely free and a fee is only payable on the successful draw down of a grant.  No grant no fee!

The minimum grant available is  £10k and provided that all other areas of funding have been exhausted then funding may be awarded for between 10-35% of the total project cost therefore other sources of business finance must be secured to prove that the project is financially viable.

Following an initial meeting and a draft a project proposal which is discussed with the funding body and we get feedback within 2/3 days as to whether or not the business is likely to be successful with a grant application. It is important that you use  the best possible expertise and experience in making sure that the application is dealt with in the correct manner to obtain the best possible chance of success. It is  possible to go though the process yourself however experience suggests that it is better leaving it to the experts. From start to finish the process should take no more than six weeks however a business left to their own devices may take as long as six months wasting time energy and money. Far better to take the money now pay someone to do it and avoid making a mistake which leaves your application worthless.

Any business which has applied for the ECFG funding and has been declined may find a greater chance of success with the possibility of a grant. XL business Finance has over 10 years experience in providing innovative funding solutions and this is just one of the many areas we may be able to add value to your business.

Invoice Finance and Stocking Finance

March 2nd, 2010

At a time when it is becoming more and more difficult to obtain working capital through traditional banking facilities many businesses are looking to alternative and possibly more flexible form of finance. Invoice finance combined with stocking finance is an asset based finance product that can provide additional working capital over and above traditional invoice discounting and factoring facilities.

There are very few invoice finance companies that will offer a true stocking facility. There are some that they say provide finance against stock but it usually on the back of a factoring or invoice discounting facility to provide no more than 100% of your debtor book. In addition the loan or overpayment is only on a short term basis that will need repaying over a relatively short period of time. However there are definitely two or three UK based invoice discounting providers that provide a true revolving stocking facility. Again this must be provided in conjunction with the factoring or invoice discounting facility. As far as we aware there are no finance companies that will provide a stocking facility on a stand alone basis.

How much of a facility you can obtain against stock depends on the type of business you are in, how specialist the product is and the potential market for the stock. As a rule of thumb expect to get no more than 30% of our initial outlay. We are looking at a invoice discounting and stocking facility for one customer at the moment and their total stock is in excess of £2.m can potential provide a facility oF £600k over and above the 85% debtor book. This will provide much more working capital than the bank can ever provide and as such is known as a no brainer!

 

To make sure you are speaking to a funder that provides a true revolving stocking facility give XL Business Finance a call today and we will point you in the right direction.

Asset Finance in an MBO

March 1st, 2010

Amongst all the turmoil of the last eighteen months we are still seeing one or two opportunities to fund management buyouts.  This makes a change from the business going bust and new directors and shareholders  buying  the business off the administrator. In terms of providing funding there are fewer options than there were before the credit crunch however asset finance is becoming more and more prominent as a option to top up other types of funding.

Once upon a time you could go to many high street business banks and obtain a cash flow lend against the turnover and the profitability of the business. The amount that could be borrowed bore no resemblance to the individual assets of the business, mainly buildings , debtor book and plant and machinery. It was once possible to obtain funding much higher than the total worth of all these assets. These sorts of loans are virtually impossible to come by nowadays because many of the banks have had their fingers burnt as business have failed during the recession leaving the banks highly exposed.

Nowadays it would appear that traditional asset based lending would be the way forward. A commercial mortgage, factoring and invoice discounting and a bit of asset refinance to top up the facilities. If the vendor requires any more cash than it is usually done by way of deferredpayments. However asset finance and asset refinance is playing a more and more important part of the MBO process. It is important that an asset finance specialist can provide the best possible options for refinancing your kit. There are various finance companies that specialise in engineering , printing and commercial vehicles and they use their own experiences and supplier network to value equipment . There are also a number of general funders that use professional valuers to obtain valuations for refinancing purposes. At XL Business Finance we use our knowledge and experience to make sure the best possible option is provided for your business.

Switching Invoice discounting company

February 25th, 2010

Contrary to popular belief switching factoring or invoice discounting companies is relatively straight forward.  However it is more difficult if the exiting funder doesn’t want want you to leave.  Under extreme circumstances the existing discounting company will have notice periods built into the terms of the deal which  they will require paying in full. As notice periods could be anything from a  month to six months a chunk of minimum payments can soon add up. However if the relationship has totally broken down the existing provider may be willing t0 reduce their fees and the new provider may be willing to contribute to the fees to ease the pain so to speak. In addition a minimum contract from one to three years is not unusual and this must also be taken into consideration.

How you will be dealt with depends on the existing provider. Many of the banks prefer to keep a very clean and straight forward portfolio and if you don’t meet the banks strict criteria they will be more likely to let you go without a fuss. They dont want to be seen hindering a business especially if it is one of our government owned institutions. One of the biggest enquiries at the moment is for businesses wanting to switch from bank owned factoring and invoice discounting comapnies to more flexible providers.

Once all parties have agreed to the move there is a code of conduct that exists between the two funders. The new finance company will set up their  own trust accounts and the existing funder will sweep any money coming to the old accounts and pay it across until your customers get to grips with the change of banking arrangements. Hopefully the small amount of pain will result in new found financial freedom and flexibility. So there!

Bank restricting my invoice discounting facility

February 24th, 2010

Ok, I know I keep harping on about the banks and potentially having too many eggs in one basket however we have recently come across a situation which shows the banks for what they truly are.

Approx 12 months we were approached by a engineering company with a turnover of approx £12m to help source a competitive invoice discounting facility. They were banking with a well known high street bank that shall also remain nameless. A commercial mortgage was in place with the same bank for approx £500k against a fairly recent valuation of £1.1m so plenty of security here thank you very much. We recommended a totally independent invoice discounting company so the bank wouldn’t have too much control. The cost via the independent would be appox £30k of service fee for running the facility compared with what the bank who were offering the facility at a loss leading £12k per annum. From a cost point of view a no brainer however if trading conditions were to take a turn for the worse this could leave the customer exposed to the mercy of the bank.

Now then 12 months down the line and because one of the group businesses have struggled the customer has been placed with the banks specialist care unit and as such is facing massively increased costs.

The service fee has been increased by 1%,  the interest rate has been increased by 0.75% and a monthly management fee of £1200 per month for monitoring the business has been applied. In addition a one of fee of £10k is being charged to verify the management information and cash flow projections. All this adds up to a whopping additional £50k per annum. Ouch!

Although this business has a £100k overdraft facility they are currently running stock at £2.5m. Within in two weeks we expect to have the customer uplifted from the bank with a new invoice finance company complete with a revolving stocking finance loan providing the business with an additional £200k working capital even after paying off the bank overdraft!

Invoice Finance helping ease restricted credit terms

February 24th, 2010

One of the most common difficulties currently facing many businesses is that creditors are trying to shorten their credit terms. In extreme circumstances we are seeing many credit terms being completely removed. Suppliers are wary of providing credit on the basis that they probably have had their fingers burnt due to the vast number of businesses going into administration. This doesn’t help the business which are left particularly when it appears they themselves are struggling to get cash out of their own customers. Banks are being very difficult when it comes to increasing overdraft limits  therefore in order to obtain sufficient working capital many business are turning to more flexible forms of invoice finance. Additional working capital is also being obtained by refinancing existing capital equipment.

Once upon a time invoice finance such as factoring and invoice discounting was deemed to be a lend of last resort. Refinancing existing plant and machinery was considered unnecessary and expensive compared with what the banks could provide. How times have changed. Both these specialist areas of finance can provide a life line to many struggling businesses or indeed any business which isn’t getting enough working capital from their incumbent bankers.

XL Business Finance has been providing innovative finance solutions for over 10 years. We are one of the leading independent experts in providing refinancing options against existing plant and machinery. We also have a vast knowledge and experience of the many factoring and invoice discounting companies. No matter how difficult your situation or indeed how well your business is trading we can certainly add value to your business when it comes to obtaining the right funding solution for your business. Any search on the world wide web will reveal hundreds of different factoring and invoice discounting companies. We will use our knowledge and experience to provide only two or three of the most appropriate finance providers

Factoring with a poor trading performance

February 22nd, 2010

Many business believe that they are not eligible for an invoice finance product because they have a poor trading history. This will almost certainly be the case if you require an invoice discounting facility. This might also be true if you approach a high street bank for either invoice discounting or factoring. The good news  is that even if your bank has knocked you back for a factoring facility there are many independent factoring companies specialising in this area and they are able to take a more flexible approach to helping a business.

The problem with the banks is that factoring and invoice discounting is not really what they are about or it is not a core product. In our opinion most banks are a jack of all trades but a master of none. An independent grows its business on the back of the smaller and more challenging deal. It is willing to go the extra mile to assist a business. It understands that the sucess of running a factoring factoringcan be the difference between a business succeeding or failing. It also will take into consideration the quality of your debtor book which if it is of good quality it will certainly assist in obtaining a factoring facility.

Remember there are so many factoring companies to choose from and as such it can be a minefield when it comes to choosing the best provider for your business. A good independent broker will be able to narrow the oice of finance companies down to the best two or three saving you time , effort and money. WHICH ONE IS BEST FOR YOUR BUSINESS WILL DEPEND ON YOUR LOCATION, TURNOVER, QUALITY AND QUANTITY OF YOUR DEBTOR BOOK AND THE LEVEL OF ANY PROBLEMSWITHIN YOUR BUSINESS.

Small Business Invoice Financing

February 19th, 2010

Invoice financing provides cash against your unpaid invoices. Most factoring and invoice discounting companies will release up to 95% of your newly created invoices immediately with the remaining 15% being paid when your customer settles the invoice in full. For small businesses that might find it difficult to obtain a bank overdraft invoice financing can provide much needed working capital. As mentioned in previous blogs not all finance providers are the same and this is even more relevant when it comes to a small business choosing the right invoice financing company for their business. XL Business Finance has been helping small businesses for over 10 years obtain the most appropriate and flexible financing solutions.

Factoring can be obtained with a turnover of not much less than £100k per year. There are a number of small businesses which specialise in providing factoring services to the smaller business so it is always worth approaching one of these companies. Some of the larger independents are also very approachable and provide a quality service. With factoring our recommendation would be to choose a factoring company which is local to your business and one that actually specialises in factoring. Factoring is very much about adding value because not only does it provide cash against your unpaid invoices factoring also provides credit control leaving the owner with time to do other things. For this reason we do not tend to recommend the banks for factoring as it is more of an add on product than anything else.

For a small business it is more difficult to obtain a confidential invoice discounting facility. Traditionally invoice discounting has only been offered to business with turnover of £1.0m plus. However there are one or two invoice financing providers that will prefer to offer invoice discounting.  It all depends on how long the business has been trading, the previous track record and the systems and controls the business has inplace for credit control.

 
 
 

XL Business Finance Ltd is a privately owned and independent business financing company with established links to many of the UK's leading finance houses. XL Business Finance provides a viable alternative to high street banks that lack the flexibility and imagination to provide a solution to most business users requirements. XL Business Finance can provide a full range of business financing solutions and we ensure a high level of customer service and pride ourselves on quick decisions. Our independent status will ensure any offer of funding and asset finance leasing is best suited to our customer’s needs.

XL Business Finance, Eaton Place Business Centre, 114 Washway Road, Sale, Cheshire M33 7RF UK.

 

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