Asset finance leasing - XL Business finance

Guide to Refinancing

August 7th, 2009

XL Business Finance is one of the leading specialists in refinancing plant machinery and existing equipment. Refinancing existing equipment is completely different from traditional equipment finance and here are a few tips to explain and make the process a lot easier.

1. Identify why there is a need to raise additional cash

2. Provide a list of equipment and machinery to be refinanced. The age , manufacturer, model will be required as a minimum. Provide any other information which may help to increase the refinance value such as any extras, original cost, condition and usage.

3. If the equipment is the equipment subject to any finance agreements settlement figures will be required.

4. Are the existing finance agreements hire purchase or finance lease as it will make a difference to the settlement procedure and  VAT treatment?

5. Are there any debenture holders? If a business has a bank overdraft or uses factoring or invoice discounting they will have a charge over the book debts and a floating charge over the assets. A debenture waiver will be required to release the assets and it is important to that the relevant funder is approached early in the decision making process.

6. Is there a Landlord? If there is a landlords waiver will be required before the equipment is refinanced. A landlords waiver will prevent the landlord from distraining against the equipment in the event of non payment of rent. It will also give the finance company a period of time to sell the equipment. A landlords waiver is usually  90 or 180 days and the longer the period the bigger the valuation.

7. WE will obtain a desk valuation. This gives us an indication of the value of all the equipment to be refinanced. XL business finance will use our expertise to get  the best possible valuation. Depending on the type of equipment we will obtain different valuations from professional valuers, dealers and various finance companies.

8. Personal guarantees. These are not always essential although it will help obtain a higher loan to value. Sometimes a limited personal guarantee can be taken

9. Directors warranty. A warranty confirms the goods are free from encumbrance  and ensures the goods are returned to finance company in the event of any default situation

10. Collating paperwork . Coordinating the paperwork is important to ensure the transaction is seamless from start to finish and ensures funds are drawn down as quickly as possible.

Payroll Finance

August 6th, 2009

Word on the street is that payroll finance is going to make a comeback. Payroll finance was the short lived funding solution that provided the equivalent of  two months gross payroll on a revolving credit facility.

Until recently there were two funders in the market providing payroll finance. Wageroller was the first company to stop trading and more recently Smartflow went into administration.  Payroll finance albeit an expensive finance solution providing a working capital solution for businesses which maybe couldn’t obtain working capital via the more traditional funding facilities such as overdrafts, invoice discounting or factoring. The facility was ideal for businesses which worked on a contract basis such as construction companies. It was also very popular with private schools and also PLCs.   

The advantages to the customer of payroll funding was that the facility was totally unsecured and no personal guarantees were required. In addition the funders were providing a finance product which was deemed to be a service and as such it was classed as a trade creditor. This would have been of particular benefit to PLCs or businesses with onerous banking covenants because the facility would not have affected any banking facilities.

If the product does make a come back it will be interesting in what guise it will take  and what will be different that will make it succeed  where it did not do before.

Financing Digital Equipment

August 6th, 2009

Digital Equipment can be described as being a soft asset. In the view of any finance company wrongly or rightly digital equipment is perceived as having very little value from a security point of view. Therefore most finance companies will take a very different approach when underwriting a deal. Unless a business has a very strong balance sheet , has been long established and is very profitable most high street banks and finance companies will not finance digital equipment. In other words they view it as unsecured lending and in the current economic climate it is difficult to get finance agreed on this basis.

However there are a couple of specialist funders that as a rule of thumb will advance to the business £10,000 for every director that is a home owner. In most cases personal guarantees will be required from eack of the directors. The finance companies are calling all the shots at the moment and due to the lack of funds available in the market for every potential customer saying they will not provide personal guarantees there are probably a dozen or so saying they will give personal guarantees. 

Alternatively it may be possible to refinance existing equipment to provide additional security to the finance company. XL business Finance is a speacilist in this area and asset secure deals can be structured to purchase high tech equipment. If there is still a shortfall in finance it is possible to do a deal by taking a charge over property. Specialist funders can do these deals very quickly. They don’t need business plans and projections as the banks will do. A deal can be put together as quick as it takes to obtain an authority from the first mortgagor.

Stocking Finance

August 5th, 2009

Enquiries regarding stocking finance seem to be on the up. As businesses find the high street funders more and more difficult to deal with, managing directors and finance directors are continually looking for innovative ways to help with cash flow. Stocking finance is a facility normally used in conjunction with a factoring or invoice discounting facility however in cirtain circumstances it can also be funded on a stand alone basis. Not all funders do proper stocking agreements and here’s why! 

Most factoring or invoice discounting companies will tell you they can fund stock. They will only do it in conjunction with a factoring or invoice discounting facility. In addition these finance companies will only fund stock as an overpayment up to amount equal to 100% of the debtor book. For example if  a business is obtaining prepayments at 80% and the debtor book is at £100k a typical factoring or invoice discounting facility will generate £80k against the value of the invoices. The maximum amount they will be able to generate from stock is therefore £20k being the difference between the total debtor book and the prepayment amount. More often than not stocking finance can not be obtained on a revolving credit basis and the intitial loan is normally clawed back over 12 months from when the advance was made. A factoring company will use this overpayment secured against the stock to win new business or help the business with a one off project.

There are however a few funders that provide a true revolving credit facility secure against stock.  These funders are few and far between but they doexist. Depending on the turnover, profitability and length of time the business has been trading will determine which funder we will recommended.

We also know of one funder that can potentially finance stock on a stand alone basis however as you can imagine the business would need to be well established and profitable. It may be possible to get 30p in the pound however as min facilities would be in the region of £300k a stock value of around £1m would be required.

Lloyds Blame HBOS for £4bn Losses

August 5th, 2009

Apparently the LLoyds banking group has made a pre tax loss of £4billion in the first six months trading of this year. This is the result of Lloyds taking over HBOS where an unprecedented amount of risk taking led to its failure and ultimate bail out by the tax payer.

I bet LLoyds wish they hadn’t bothered now. More interestingly  if the bad debts of HBOS are stripped out, LLyods would have made a operating profit of £6bn. It makes you wonder what sort of cretins were running HBOS so that £10bn of bad debts have effectively been written off in the first 6 months of this year.

The outlook is that LLoyds will right of more bad debts in the second half of this year, but thankfully not as many. The long term outlook is that LLoyds are predicting a recovery in 2010.

Up until the credit crunch we saw many risky deals being done not only by HBOS but by other prime lenders as well. Not only were these deals being done in the traditional banking sector, very risky deals were being done on equipment finance. We were seeing some hire purchase and finance lease deals being agreed which in our opinion it would be unlikely a second or third tier funder would approve.

Not only that, once a deal was agreed no account of the risk was taken into consideration and the deals were being priced too cheaply. Bank and asset finance is a risk reward business and financial institutions have an obligation to balance their portfolio in terms of risk and pricing. It appears the banks have learnt their lesson and for the time being rates will continue to be priced accordingly.

Obtaining a Commercial Mortagage in a Prepack

August 4th, 2009

Obtaining a commercial mortgage in a prepack could be an opportunity to purchase your own business premises for a significantly reduced amount. A prepack is effectively a pre organised administration. The day after a business goes into administration the directors purchase the old business off the administrator via a new company in a prearranged deal.

Although high street banks and finance companies often take a dim view of such transactions in our view it is provides the business with a clean break and the opportunity to to clear out the dead wood. Unfortunately there will always be casualties however surely a new business trading has got to be better than no business trading at all.

It is certainly possible for a the phoenix company to trade without doing an immediate deal on the property. In fact we have seen deals negotiated with the former bankers whereby the business pays a monthly rent at a much reduced amount compared to the monthly mortgage. In these difficult times commercial properties are being valued much lower than they were 12-18 months ago. Most of the lenders are keen to get some cash in the door so the situation enables the new phoenix company to make a cheeky offer. We are currently seeing businesses purchasing their own commercial property from the administrator for a much reduced amount. Although the high street banks are unlikely to finance the property in the new co there are still one or two building societies and second tier funders providing commercial mortgages. No mortgage lender will provide a facility against the value of the property. In all cases serviceability and cash flow  must be proven.

Barclays profits up to Nearly £3bn

August 3rd, 2009

Although Barclays has announced pre tax profits in their first six months trading profits in retail banking nearly halved. The profits in question mainly came from the banks investment arm which has seen profits double in the first six months of this year compared with the first six months of last year. Barclays investment arm has been attracting corporate investments as they have been shying away from part nationalised banks.

The question is, do these figures suggest an improvement in the banking sector and provide an indication we are on the road to recovery? In our opinion probably not. The fact is profits in the retail sector are half the amount they were this time last year. And it is the retails sector that we are interested in as this is the sector which lends to the SME market. In our opinion credit is still being restricted to the SME market and Business Financing is still difficult to obtain. The banks are dammed if they do and dammed if they don’t. On one hand they are being told to start lending to the business sector. On the other hand we are in this mess because of their irresponsible lending. WE are in the middle of the worst recession since donkeys ago so is it no wonder.

VAT & PAYE Arrears?

August 3rd, 2009

It appears more and more businesses are falling into arrears with PAYE and VAT. Although the majority of customers we help appear to be busy in terms of a full order book and reasonable sales the biggest problem is with cash flow.

Their customers are telling them they can’t pay because their customers can’t pay and so on and so forth. The lucky businesses might be able to go to their bank and obtain an increase in overdraft facility, however we are seeing more and more cases where the bank has promised an increase in overdraft and failed to deliver. Factoring or invoice discounting may release much needed working capital and it is even possible to refinance existing equipment to release equity to provide cash injection.

So what happens if there are no further means to release cash? If there is a significant amount of PAYE and VAT arrears it might be possible to obtain an arrangement with the Inland Revenue and Customs. It can be argued that a corporate recovery specialist will do a better job and can act as an intermediary between your business and the relevant authorities. In extreme cases a creditor’s voluntary arrangement or an administration might be more beneficial to the business going forward.

XL Business Finance has a great deal of expertise in providing funding in the event of an administration. The most important aspect is to appoint a friendly factoring or invoice discounting company before the administration. Even if this means taking out your existing factoring or invoice discounting company. The new factoring company will then appoint a friendly administrator to ensure the directors of the business are in the best possible position to buy the business off the administrator.

These deals are known as pre packs and are growing in popularity. In the current economic climate there are obvious advantages and businesses are using the recession as an excuse to clear out the rot and give the business a new lease of life.

Confidential Factoring

July 31st, 2009

A relatively new product to the market Confidential Factoring provides the full benefits of a normalfactoring service together with confidentiality that so many businesses would prefer. There are only a few factoring companies providing this service and as such the facility represents only a small fraction of the whole cashflow market.

A facility will provide full credit control and debt collection. The finance company provide their client with their own unique telephone number and a dedicated credit controller. All telephone calls letters and communication are made in the name of the client so your customers are unaware that a ull factoring facility is being used. Any monies collected are paid into an account in the name of the customer but operated by the particular funder. This provides the cash control that the factoring companies require which under a standard invoice discounting facility they would not obtain.

This facility is suitable for businesses that would prefer invoice discounting which is confidential but unfortunately do not meet the criteria for an invoice discounting facility. Invoice discounting is deemed to be more risky than factoring because the finance companies do not have the same degree of control. In the current economic climate factoring and invoice discounting companies are less likely to grant invoice discounting facilities, especially if the business has been trading less than 3 years or is financially week.

New Business Financing

July 29th, 2009

It appears that there are still one or two individuals looking for new business financing.  I suppose this is not unexpected given the number of people being made redundant in the current climate.

Any new start business approaching their bank will need to produce business plans, cash flow forecasts and inside leg measurements. Their friendly business relationship manager fresh from university will suggest that they apply for EFG funding promise the earth , collect a load of information string the customer along for a couple of months and then after much persuading he will find out that they are unable to do the deal. No surprise there then!

AT XL Business Finance we take a more straight forward approach. We don’t necessarily require business plans and we can very quickly determine what level of funding will be obtainable. With the right information we can normally do his within a couple of days. In simple terms there are a number of ways a new business can be funded. If capital equipment plant and machinery is required  asset finance in the current climate can be obtained at an amount equivalent to the forced sale value. Any shortfall can be topped up from personal means or by taking additional security such a second charge over a personal property. Banks will not automatically lend to a new business just because a second charge is available. The rest of the plan must tick all the right boxes A task in itself in the current financial predicament.

To assist with cashflow a factoring facility can be put in place. This will release 80% of unpaid invoices immediately providing much needed cashflow. It is amazing the number of accountants that don’t recommend  factoring or invoice discounting thinking it is expensive and still product of last resort. Factoring charges start at a few hundred pounds a month and are a valuable tool for any new business.

 
 
 

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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