Asset finance leasing - XL Business finance

Financing Imported Machinery

July 27th, 2009

Financing imported machinery can be quite a complex issue. Often the supplier will requiring paying up front however the finance company is loathed to release payment before the equipment is delivered to the customers premises.

More often than not a common sense approach can be reached whereby an amount equal to deposit is paid across to the supplier to provide some commitment. Providing the supplier is provided with some form of evidence that a hire purchase or finance lease facility has been agreed this is usually enough to get the machinery on its way. Most UK finance companies will release payment tothe supplier on evidence that the machinery is on UK soil .

To protect the customer a small retention of 10-20% of the net cost of the godds can be withheld until satisfactory installation. If the supplier is unwilling to release the machinery or equipment prior to shipment before receiving payment in full it was once possible for a funder to provide a  pre facility loan or overdraft.

For obvious reasons the customer would need to be pretty strong in terms of their financial standing. These facilities were more often than not offered  by bank owned finance companies however in the current era of restricted credit most of these facilities have been withdrawn. However not to say a bank might not provide an overdraft facility for some of their better customers.

If none of these are an option  it may be possible to arrange a letter of credit.  This is basically  a bank backed guarantee stipulating that providing certain conditions are fulfilled payment to the supplier is guaranteed. XL Business Finance has experience and expertise at negotiating with foreign supppliers and ensuring the correct wording and documentation is provided to enable the quick release of funds and at the same time providing protection for the customer and comfort the supplier.

Bank Borrowing Too Expensive?

July 27th, 2009

So the Chancellor of the Exchequer has finally realised that the banks are charging more than they were 18 months ago. We have known for sometime it has become increasingly more difficult to obtain hire purchase and finance lease facilities as the banks and high street finance companies continue to restrict credit.

In my opinion they are caught between a rock and a hard stone. The economy is in a mess due to their irresponsible approach to lending in the boom times. Now that we are in a recession and they have been bailed out they are supposed to be helping the small businesses but they have used the money from the government to improve their balance sheet.

For every loan or overdraft they advance they are supposed to have a percentage of the advance in cash reserves. How much they put into reserves depends on the finance product in question. For example if an overdraft facility is granted a much higher percentage of the advance must be kept in reserve than a factoring or invoice discounting facility for example. That is why your bank manager will always try and push a business into a factoring or invoice discounting rather than an overdraft facility.

In addition to providing better security factoring or invoice discounting is less onerous on the banks reserve requirements and improves their overall balance sheet. The high street banks will tell you they are open for business but privately they are cherry picking their deals. Although the banks are charging a higher margin the overall costs in the majority of cases has significantly been reduced virtue of the fact the bank base rate is so low.

It must also be remembered that finance is a risk reward businesses and funders have the right to charge their customers appropriately. Although the banks have finally woken up to this fact if you are a business and you have been offered a facility from a high street bank it will probably be by far the cheapest finance on offer.

Matching Clients With Factors

July 23rd, 2009

As a leading independent factoring and invoice discounting broker it is important we match the most appropriate factoring company with our potential clients. XL Business Finance use over twenty different finance companies that all have a different criteria in terms of the clients they are looking for. The main paramiters which we work to are.

Is factoring or invoice discounting required? As a rule of thumb some of the independents are better at factoring than the bank owned factoring companies. This is because factoring for the independents is their main core activity. They will go the extra mile in terms of chasing your customers. An independent specialising in factoring is more likely to chase and phone all your customers. Although cost must be important factoring is more of a value added service and as such you tend to get what you pay for.

Turnover. This very important because different factoring companies are comfortable in a certain turnover range. Some factoring companies specialise in the small business sector to provide that extra personal touch. XL Business Finance can advise which factoring company will best suit your particular needs

Location. Different factoring companies have a strong presence in different geographical locations. XL Business Finance can advise as to which factoring companies are best in your particular area.

Market Sector. Different factoring companies can have a particular niche in certain market segments. Certain factoring companies are very good at haulage or printing for example. It all depends on their particular experiences of the different market sectors.

Finally Product. Some factoring companies can provide stocking finance in addition to the debtor finance, others are good at international trade. Some are good are good at contractual debt.

XL Business Finance can save you the time and expense of locating the most appropriate funder

Use existing assets to secure funding for new capital expenditure

July 22nd, 2009

Whilst finance companies and banks continue to remain ultra cautious in the current economic climate we are constantly looking for innovative finance solutions to help businesses with their new and used capital expenditure programmes. Unless a business is very profitable and has a very strong balance sheet it is remaining increasingly difficult to obtain funding from the high street finance companies. It seems they are looking for reasons to decline deals as opposed to looking for reasons to agree deals. Who can really blame them when they are suffering unprecedented bad debts and they are being inundated with more proposals than they can actually cope with.

One of the ways XL Business Finance has been helping customers with their capital expenditure plans is by looking at existing equipment and machinery to provide additional security. If the high street funders are not playing ball there are a number of funders that will look to ways of doing deals but they need to be reasonably asset secure. Therefore we can look to take a charge over unencumbered kit to provide additional security for the same funder or it may even be possible to refinance existing assets or machinery with one funder to provide an acceptable deposit for another funder. These structured deals obviously work well where there is substantial kit with good residual values. Therefore printing engineering, packaging, manufacturing businesses all work extremely well.

IS EFG Funding Working?

July 22nd, 2009

We have received numerous enquiries about Enterprise Finance Guarantee Funding ( EFG).  EFG was supposed to be a more flexible replacement of the old Small Firms Loan Guarantee Scheme. The new scheme opened funding up to a larger cross section of businesses and is less restrictive in terms of eligibility.

The scheme was to provide additional security to the banks to enable them to be more flexible when approving business loans. For example if a bank liked the look of a deal and the only reason they couldn’t get approval was because of lack of security then this is where the SFLG kicks in. It may also be worth mentioning that all other forms of tangible security from the business and its directors need to have been exhausted. Therefore if a director has plenty of equity in his personal house  the bank must use this before a business is eligible for the EFG funding. However the EFG doesn’t provide security for the whole of the loan still leaving the finance company with a certain amount of exposure. This leaves us with a bit of a problem.  Banks being banks want their cake and they want to eat it. Not only do they want the maximum mount of security, the loan must meet all their normal lending criteria before they will even consider a customer for EFG funding. Therefore if the deal doesn’t stack up in their eyes it won’t even get passed first base.

All the banks publically advertise that they do the EFG funding but in reality only 2 of the high street banks are responsible for 90% of the advances. This doesn’t help if you are not with one of these two banks.  In addition we have been seeing a number of approvals recently from high street funders offering very high rates comparable to sub prime funders. They are effectively saying we don’t want to do this deal.

Refusal to release assets from all assets debenture

July 21st, 2009

XL Business Finance was recently approached to look at a substantial refinancing deal for a large outside catering business. The equipment to be refinanced was mainly commercial vehicles converted into specialist catering units. Therefore the assets were not every finance company’s cup of tea.

However not wishing to give up we secured a finance facility with one of our asset based finance companies. You might think job done but oh no. As part of the documentation process a debenture waiver must be obtained from any funders holding a debenture. This would normally be the bank if there is an overdraft or loan in place or it can be from their existing invoice discounting company. Or it can be both.

Any funder having an all assets debenture has an automatic legal title over any assets in the business so the asset refinancing company must get the equipment released from the debenture via a debenture waiver. More often than not it is the banks which can cause issues but imagine our surprise when the non bank owned invoice discounting company would not release the assts from the debenture.

They refused not because the kit was needed as part of their security but because they were reluctant from a dubious legal point of view. This particular invoice discounting company must have racked a large legal bill of several thousand pounds not to mention the legal costs from the customer’s point of view. In our opinion it was totally unnecessary.

The result was the refinance was delayed by a number of months and we are now in the process of switching the customer to a new and more flexible invoice discounting company. Any refinance of existing equipment should be straight forward at documentation stage and if you have had any similar problems we are here to help.

Hire Purchase or Finance Lease?

July 21st, 2009

We often get asked which is the best way to finance capital equipment. In short the answer can be subjective and we will always refer you to your own accountant. However we can provide you with the differences which will probably point you in the right direction.

A hire purchase and finance lease facility are both ways of funding capital expenditure requirement however they are structured in slightly different ways and have slightly different tax treatment.

With a hire purchase facility all the VAT must be paid up front with a deposit of usually 10% of the net amount. At the end of the agreement and with payment of the final payment an option to purchase fee is paid and legal title passes to the customer. The equipment is shown as an asset in the companys balance sheet from the onset of the hire purchase agreement with a corresponding liability for the finance agreement. Capital allowances are claimed on a reducing balance basis.

With a finance lease the equipment is still shown as an asset and liability in the balance sheet however there are several fundamental differences. Firstly the VAT is spread over the term of the agreement and paid with the monthly rentals. Therefore from a cash flow point of view finance lease can work better for some customers. Instead of claiming capital allowances the monthly rental is offset against the profit and loss account therefore the full benefit from a tax point of view is claimed over the exact period of the lease. This can be advantageous if the equipment being funded is high tech and will need to be replaced at he end of the agreement. However at the end of the agreement the finance lease will go into secondary rentals which are equivalent to one months rental being paid on an annual basis. Alternatively the kit can be sold and the customer retains typically 95% of the sale proceeds. The remaining 5% is paid to the finance company along with the VAT

Independent or Bank Owned Factoring Company

July 20th, 2009

There are many factors which need to be taken into consideration when choosing a new factoring company. The most important of which is whether an independent factoring company or a bank owned factoring company is the preffered route. An independent company which is non bank owned traditionally tend to be more flexible than banks.  Independents don’t have the same financial constraints as the banks as they are able to make their own rules and regulations. In addition many of the sales guys working for independents are very senior and experienced and are able to agree deals instantly up to a certain size. This potential quick turnaround in the decision making process can also is a factor in choosing a funder.

As a rule of thumb we would recommend an independent for a full factoring facility.  It is more likely that an independent will chase your customers more frequently. Some banks will only phone the top few customers. Certain independents will chase the entire customer base. Obviously this will have an implication on cost and is the reason why it may appear cheaper to use factoring with a bank. However it must be remembered that factoring is a value added service and the cheapest is not always the best.

However if you are looking for a straight forward invoice discounting it is sometimes difficult to argue that the independents are better than the banks. At this point other factors also need to be taken into consideration. The length of time the business has been trading, is it a new start , is there any contractual  element to the debt, is any international trade finance required, is their additional stocking finance required etc etc


Overdraft withdrawn when switching to factoring/invoice discounting

July 20th, 2009

If you are considering switching to a factoring or invoice discounting facility it is worth considering the implications this may have on any available overdraft facility.  It is more likely than not that a bank will have taken an all assets debenture against the company. This means that their security is the debtor book of the company. Therefore when considering an alternative cash flow product there must be enough flexibility in the headroom of the factoring or invoice discounting facility to fully repay the overdraft and provide additional working capital. Any bank informed of a customers intantion to use a factoring facility in my experience will require the overdraft repaying in full. Remember an overdraft facility is repayable on demand.

I have also seen customers being caught out wanting  to switch a factoring facility away from a bank to another independent factoring company. They have forgotten or not realised the bank has an all assets debenture registered against the business to secure a small overdraft. Before the customer can switch the overdraft will need to be paid off but it can often be the  customer doesn’t have the headroom to repay the overdraft. Sometimes it may be possible to get a small over payment from the new factoring company or it may even be possible to refinance existing equipment to repay the overdraft and provide additional working capital.

commercial mortgages

July 17th, 2009

Probably worth mentioning a few words on commercial mortgages. All the banks are telling you that they are open for business. What a load of codswallop. In reality there are a very few banks skimming the cream of the deals. The banks that are lending are only lending to their own customers providing you have a large deposit, profitable and have a very strong balance sheet.  The government owned banks are lending a bit but i’m sure they dont really want to be lending.  There are all kind of rumours going around as to why they are not lending. Is it because they need the money from the govermenment to strengthen their balance sheets or is it becuase they are playing on the bond makets as someone suggested to me recently? Probably because we are in a recession and they dont want to.

The chances of getting a commercial mortgage from a bank other than the one you bank with are next to nothing. If your business is strong enough to raise the eyebrows of another bank be prepared to have to move your banking arrangements lock stock and barrel in order to get the funding. The most important aspect of the transaction will be the serviceability of the transaction. Even if there is a very low loan to value it doesn’t automatically mean an application will be accepted.

Even the near prime and sub prime  unders that once upon a time would lend up to 80% of the valuation are closely scrutinising the serviceability of the transaction. How times have changed!


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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