Asset finance leasing - XL Business finance

Invoice Finance and EFG Funding

March 16th, 2011

It is now possible to get Enterprise Finance Guarantee Funding ( EFG) on the back of invoice finance facilities. Additional funding over and above the traditional 80/85% prepayment may be available.

This news may be a welcome relief to businesses that have approached their own high street banks for EFG fundin,g but for one reason or another have been refused. It must be remembered that as far as banks are concerned the availability of a government guarantee doesn’t make a bad deal good. For a business to be available for EFG funding via a high street bank, they must meet that banks normal lending criteria and if there is a lack of security in the deal then that is where the EFG funding kicks in.

If you don’t meet the banks’ normal lending criteria then it won’t get past first base. The problem is that it appears that many commercial high street bank managers don’t know what they can and can’t do and rather than saying no, they string the customer along on a merry dance.

There are currently two invoice finance companies offering EFG funding on the back of invoice finance. One provider will provide an overpayment to a maximim of 100% of the outstanding debtor book whilst the other will provide EFG funding equivalent to any director’s loans that there might be in the business.

Obviously these companies use slightly different criteria and it doesn’t take a rocket scientist to work out which invoice finance company might be best for you.

Is it Possible to refinance plant and machinery via a prime funder?

March 11th, 2011

For the right customer it may now be possible to obtain asset refinancing via a high street finance company. Asset refinance has been a very specialist market up until now. But are things about to change?

Probably not but if you have a very very strong balance sheet and you are looking to refinance for positive reasons then it just may be possible. The flood gates are certainly not going to open but it is certainly worth knowing about.

Asset refinance has always been a specialist area because there are so many pitfalls from the funders perspective compared with just taking an invoice direct from a supplier. With a traditional hire purchase or finance lease transaction it is so so more complicated and an area that the high street have traditionally shyed away from.

The biggest hurdle that a finance company must overcome is obtaining an accurate  value for refinancing purposes. This must be a realistic value and should the plant or machinery come back to the finance company in a forced sale this value would need to be achieved in a realistic time frame for the benefit of all concerned.

The finance company must ensure that they get good title to the equipment by ensuring that they have the necessary debenture waivers and ensuring the business can prove that the kit isn’t already on finance.  Documentation is also slightly different as there is the possibility of doing the deal on sale and hire purchase back, sale and lease back or loan and chattel mortgage. Which is the best depends on the circumstances around the asset refinance and each deal can be different

Factoring but doing all the collections yourself?

March 10th, 2011

Are you using an expensive factoring facility but feel that you are doing all the work yourself?  This is the most common complaint regarding factoring finance. The factoring company is supposed to handle all the collections  and credit control. However if you choose the wrong factoring company you end up having to do all the hard work which makes the facility doubly expensive. The good news is a CHOCS facility ” Customer Handles Own Collections”   provides a half way house. Read on peops.

A CHOCS facility provides an alternative to a business that isnt eligible for  invoice discounting however would not rather go to the expense of paying for credit control with a full factoring facility. CHOCS funding is very appropriate for business that already have their own in house credit control. As with factoring your customers will be ware that you are assigning your invoices to the finance company however you will be given sole responsibility for the collections element.

Obtaining confidential invoice discounting is not as easy as it used to be this factoring facility may be the perfect solution. High street banks will often try and switch a business from confidential invoice discounting to full factoring during and following a period of difficult trading. This is because a business in such circumstances is perceived a higher risk and as such full factoring gives the banks  greater control and also a greater return for the increased risk.

A CHOCS facility can be provided by a number of independent factoring companies and as such can provide an improved service and affordability.

Using assets to provide additional working capital

March 9th, 2011

Any business involved in heavy manufacturing maybe able to release cash from the value of their plant and machinery. Providing there is value within the machinery cash can be released just about for any purpose. It could be to provide additional working capital, it could be for a one off project or the cash can be used to pay the tax man. Refinancing of existing plant and machinery is a facility which is often overlooked as it is is one that is not traditionally provided by the high street banks and finance companies

XL Business Finance has been helping businesses for over 10 years refinance plant and machinery. In the current economic  climate it is perceived that the high street banks are not supporting businesses with their funding requirements.Many business are therefore looking at alternative ways to provide additional working capital or cash for one off projects.

Banks however are not traditionally risk takers and do not have the expertise to provide asset refinance in its purest form. Refinancing plant and machinery is a very specialist area in which there a few funders that have the expertise to do the job properly. There are 3 ways that assets can be refinanced. Loan and chattel mortgage, sale and hire purchase back or sale and lease back. Which facility is best or you depends upon the type of equipment, and the written down value of the kit in your books.

Factoring and EFG Funding

March 4th, 2011

We automatically assume that the high street banks are the best places to obtain funding via the Enterprise Finance Guarantee Scheme. In fact 90% of EFG funding is supplied by two such banks. If for some reason your business doesn’t meet all of the banks criteria than it maybe possible to obtain EFG funding piggy backed on the back of a factoring facility.

EFG isn’t a right. Your business must meet all the banks normal lending criteria. If you tick all the boxes but there is a lack of security in a deal then that is when the EFG funding kicks into place. If you don’t meet the banks lending criteria then you wont get passed first base. Factoring and invoice discounting companies have very different lending criteria and just because you have been knocked back via the banks doesn’t mean you will do so by a factoring or invoice discounting company.

There are two main factoring companies offering EFG funding and they do things slightly different. One funder will use EFG to lend up to 100% of your debtor book. For a business with high levels of turnover this could amount to significant levels of dosh.

Another funder will advance an amount equivalent to any directors loans in the business up to a maximum of no more than 50% of the debtors advance.

Both companies as always have a slightly different perspective on things and so if you have directors loans in the business it may be worth a have discussions with both to see which one will provide the best funding solution.

How to compare Invoice Discounting quotes

March 3rd, 2011

Comparing invoice discounting quotes for the first time can be quite complicated. There are so many different aspects of a deal, from interest rates, refactoring charges and  service fees. The cheapest is not always best because credit limits for individual clients and prepayment percentages must also be taken into consideration.  There is no point going with the cheapest deal if you are only going to get 50% of your expected funding. XL Business Finance has been helping businesses for over 10 years compare quotes and help the customer get into the nitty gritty of things.

There are two main charges to an invoice discounting facility. The interest rate for the money borrowed and the service fee. The interest rate is usually a percentage over base rate and is comparable to a bank overdraft rate. Some finance companies charge a min base rate and some link to LIBOR. Bank base rate is not always the same so it is always worth taking into consideration.

The service fee is a percentage of annual turnover however beware some invoice discounting companies charge a refactoring charge. This can be as much as 1% of any invoices that go over 90 days. Whilst this will not be a problem if your debt turn is good it is worth noting because if your customers take longer to pay it will increase the cost of the facility.

An invoice discounting will also charge a take on fee which can be anything from a few hundred quid to a percentage of the arranged facility.

New Start Asset Finance

February 23rd, 2011

New start asset finance and factoring facility agreed for new start direct mail business

Very brave I hear you all shout.  A new start business in the current economic climate. Well with the right type of funding support greatly increases the chance of survival. It is a well known myth that businesses don’t go bust because they don’t make money but because they run out of money. How many times have we seen many businesses purchase equipment for cash and then at a later date try and refinance the kit because they have run out of money. We say time and time again that it is far easier organising the finance on the outset rather than trying to do it retrospectively.

Under the right circumstances it is always possible to organise hire purchase and leasing for a new start business. Allot obviously depends on the type of equipment and the security that it offers. Traditional assets with good residual values always provides better security than high tech equipment and are easier to finance. In addition the people behind the business are just as important and your personal circumstances will be taken into consideration.

Once you are  up and running it is important that your business has adequate cash flow. Overdrafts are hard to come by for new start businesses. A factoring facility providing cash against unpaid invoices will provide a valuable working capital and a life line. In choosing your factoring company beware not all factoring companies are the same and some are better at handling new start businesses than others. Much will depend on the nature of your business , the quality of the debtor book and your geographic location.

£4.0m invoice discounting facility for export business

February 22nd, 2011

As an credible independent invoice finance broker we were recently approached by a business having trouble obtaining funding from their high street bank. The business mainly exported goods to Europe and Africa had access to a £3.0m invoice discounting facility. As most of the African debt could be credit insured it had always been possible to obtain funding against these outstanding invoices. That was until the bank had a change of policy.

At a review meting the bank announced that they would no longer be able to finance the African invoices. A change of policy apparently. The customer during 15 years of trading had never had a bad debt into Africa and in any case most of the debtors could be credit insured. This obviously had a dramatic affect on the businesses cash flow and as such the £250k in case of need overdraft facility quickly reached its limit.

In our opinion a switch from one high street bank to another would certainly be out of the frying pan and into the fire. We therefore introduced our customer to a couple of lessor known invoice discounting ccompanies that specialise in bigger deals. They kind of start off where the high street banks start getting uncomfortable. They tend to be owned by foreign banks however unlike invoice discounting companies attached to high street banks they have their own autonomy. In addition because they are foreign owned they tend to be able to deal with world wide markets.

It is always worth getting an alternative to a high street bank and a good independent finance broker will undoubtedly be able to point you in the right direction

Providing payroll services for a recruitment company

February 21st, 2011

It is now possible for recruitment companies to get a full payroll services that works in conjunction with a factoring facility. The following provides a recent case study whereby we were able to add value to a recruitment company to obtain the most appropriate funding.

Spend less time chasing payment and more time chasing business. A temporary recruitment company needing working capital to manage the gap between paying staff and receiving payments from its clients. XL Factoring sourced a factoring facility that provided 100% funding against unpaid invoices.

Not only did the facility provide working capital but it also provided credit control and payroll services. The credit control provided a full invoice and collection service whereby the customer only had to provide time sheets leaving the finance company to prepare invoices, monitor and chase payments. The payroll service handled the calculation of wages, generation of wages slips payments of NI and PAYE as well as year end payroll, sick pay and maternity records.

XL Business Finance has been helping businesses for over 10 years provide the most appropriate funding solution. Factoring is still a fast growing funding area of finance and in our opinion can be obtained via much better alternatives to the high street banks.

Is Leasing cheaper than paying cash?

February 17th, 2011

There is certainly an argument for using asset finance to fund equipment. The main reason I would say, is that cash is always better in the bank than tied up in assets. “Cash is King” as they say. I have seen many cash rich companies pay cash for assets and then due to a change in circumstances wish to refinance the kit because they have run out of cash. The problem is that to refinance equipment after it has been purchased is always far more expensive! 

Equipment can be purchased either by Hire Purchase or finance lease.

There is an argument to say that leasing is more tax efficient as the whole of the monthly rentals can be offset against taxable profit, Therefore the full tax allowances are obtained over the same  period of the lease. It can be argued that the return on the cash left in the business is greater than the cost of the finance lease less the tax benefit. At the end of the finance lease the business continues to pay a secondary rental or can obtain title via a third party. Anywhere between one or 3 additional monthly payments will need to be paid 

Hire purchase has slightly different tax treatment whereby capital allowances are claimed on a reducing balance . An option to purchase fee is paid with the final payment typically £50 to obtain clear title

As a rule of thumb most accountants would recommended equipment and hi tech assets that have a limited life span and are regularly replaced should be financed on finance lease and long life assets be funded on HP. Each customer will be different and should really speak to their own accountant to determine the best way forward.

 
 
 

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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