Asset finance leasing - XL Business finance

Commercial Mortgages and Bridging Finance

September 7th, 2009

In the current economic climate there seems as though there are opportunities to purchase commercial property at a discount. Whether it is your landlord wanting to release some cash or a phoenix business buying a property off an administrator a slightly different approach to commercial mortgage lending could result in a much higher loan to vale being obtained.

The very best loan to value one can expect is 70%. However if you are buying a property at below market value most banks and mortgage companies will only advance 70% of the actual purchase price. If the valuation comes in lower they ill only advance 70% of the valuation in affect which is lower of the two.

However certain banks and commercial mortgage companies have slightly different lending criteria if the transaction is a remortgage rather than a purchase. This is where bridging finance can come in useful. A bridging company will only go to 60% of the valuation which could still be more in real terms than 70% of the purchase price. At the same time a remortgage will have been agreed with a prime funder at 60-70% of the valuation. Briding finance is expensive and so in a an ideal world you would only want to be exposed to the bridging company for a maximum of a month.

Used in the correct manor  bridging finance can be a useful tool to obtain the maximum possible loan to value against a commercial property

Are banks doing enough?

September 3rd, 2009

Welcome to what is becoming  the usual bank bashing blog. Time and time again we see the banks looking at ways of restricting cash to their customers. No doubt they think they are not doing it on purpose however when customers need the banks more than ever in these difficult times the banks continue to pull in the credit.

Yesterday we reviewed an invoice discounting facility operated by one of the big four banks. Although the business has been trading for less than 12 months most of their customers are blue chip  and as such there were no problems obtaining decent credit limits. However this particular bank would only fund up to a maximum of 10% of the total debtor book for any one customer. Therefore if one customer represented 20% of turnover and say for arguments sakes this amount was £200, 000 of turnover, invoice finance with this particular bank would only provide 80% of £100,000. Now imagine three or four customers represented more than 10% of turnover this could have a massive affect on available funds. In the case we looked at the headline prepayment was 85% of outstanding debtors however in reality only 51% was actually being funded. As one can imagine this is having a massive detrimental affect on cash flow and their ability to trade.

Not all invoice factoring companies will provide such inflexibility and a well chosen invoice factoring company can often provide the right flexibility.

Invoice Finance

September 1st, 2009

Invoice Finance is simply the means of raising cash against unpaid invoices. It is totally a means to raise cash and as a rule has no added value service.

However in the current economic credit crunch the biggest problem customers face is getting decent trade limits against their customers which can have an adverse affect on their cash flow. The biggest source of enquiry is customers complaining of derisory credit limits and asking if there is an alternative available. The truth is that there is very little difference between the funders however it could be argued that a larger independent will provide more flexibility than a high street bank.

We believe the most important aspect in choosing a invoice discounting facility is that a business spreads the risk. Until recently it is so easy to take an invoice discounting facility in conjunction with a small overdraft, even some Hire purchase and maybe a commercial mortgage. Remember a bank is great at giving you an umbrella but soon as it starts raising they want it back. We have recently seen an instance recently whereby a customer went bust. This affected the invoice discounting facility and because it was group banked the overdraft was withdrawn and the business went into administration. This would not have happened if the invoice finance had been separate.

Finance in a recession

August 12th, 2009

The difference between this recession and the last one is that businesses have a much wider option of finance products than they previously had. In particular there are dozens of factoring and invoice discounting businesses providing bespoke funding options.

Not only has factoring continued to thrive in the recession many Managing Directors and Finance Directors are turning to the Crown to obtain payment holidays with PAYE and VAT. Any additioanl cash flow  benefit will greatly enhance chances of survival in these difficult times.

In some cases it may be necessary to restructure the business via a pr-packaged administration. Again there are so many options available to directors than there were 10 or 20 years ago.

Six months the finance  market was in turmoil as many funders were reluctant to extend finance and some funders particularly the foreign owned funders pulled out of the market completely.

On a positive note providing the deal stacks up there are many business financing options available to businesses. There are still adequately funded factoring and invoice discounting business still open for business. Many of these lessor known funders can still provide support for businesses which are basically sound but have come up against financial difficulties  not previously experienced. These are the businesses which the banks have been struggling to assist.

The sooner a we are advised of a problem the sooner we can explore the options and provide a recovery solution.

Financing A Prepack

August 10th, 2009

A prepack other wise known as a phoenix is whereby a business goes into administration with the intention of the directors purchasing  the assets ofthe business in a newly formed limited company.   Not all finance companies will fund prepacks so it is important that all ones ducks are in line before a business pushes the button.

It is important to have the right factoring or invoice discounting company in place. As banks more often than not will not finance prepacks  it may be advisable to replace the bank owned finance company with a friendlier  and more accommodating finance company. This may only work when there are no other bank borrowings. If an overdraft is in place consideration must be taken into account if notice is given to quit a factring facility as undoubtedly the bank will call in the overdraft facility.

If there are no other facilities complicating proceedings the new factoring company will replace the inflexible factoring company. AS they wll be the main debentyre holder they can appoint the administrator of your choice, fund the new co and collect in full the debtors of the old co. Seamless!

Perhaps not. Any hire purchase and finance lease deals must be taken into condsideration. It may be possible to rewrite any hire purchase or finance lease deals into the new co however not all finance companies will novate the agreements into the new. XL Business Finance has experince of helping customers replace such finance agreemnts.

Financing A Prepack

August 10th, 2009

A prepack is otherwise known as a phoenix. A business goes into administration and the directors purchase the assets off the administrator in a prearranged agreement. Not all finance companies will finance a prepack so it is important to get the best possible advice and have all the new finance facilities in place. A good corporate insolvency firm will provide experience and guidance as to the best way forward however when it comes to arranging the new finance facilities XL Business Finance can provide some help and experience of our own.

Depending on the factoring or invoice discounting company  it may be advisable to replace the existing factoring company with a more flexible funder. As it is the factoring company that more often than not appoint the administrator it is important that the factoring company appoints the administrator which will assist with the prepack. A bank appointed administrator may lead to events not going the correct way. It is also important to take into consideration any  other bank facilities which may be called in if a customer tries to change factoring companies. This will have an affect on personal guarantees. We have seen instances where procedure were carried out against the advice of the administrator, notice was given to the existing bank owned factoring company and the bank called in a substantial overdraft . As you can imagine things got a bit messy.

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.


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.

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