Asset finance leasing - XL Business finance

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.

Trade finance explained

February 16th, 2011

Trade finance provides the ability for a business to purchase wholesale goods on credit awaiting sale of the goods and therefore payment from the end user. There are several  types of trade finance and this article tries to explain the differences which should help you decide which product or type of business is best for your business.

Firstly traditional high street banks provide trade finance based on the strength and performance of the business. We call this balance sheet lending and is based purely on the profitability and track record of your business It is more often than not nothing to do with the value of the goods you are purchasing and the security that they offer.

Secondly certain factoring and invoice discounting companies provide trade finance facilities on the back of an invoice finance facility however the goods in this instance must be pre sold. For example if you were inmporting Plasma TVs from China and you had an order from Costco for example it might be possible to obtain a complete funding solution. The factoring company will provide you with an import facility to purchase the TVs. On delivery of the TVs to cost and on raising an invoice a factoring facility will provide a further funding facility until Costco pay within the terms of the invoice. As factoring will only fund 80% of the end invoice the mark up on the imported goods must be at least 20% otherwise the invoice finance facility will not repay the trade facility.

How to obtain construction finance

February 15th, 2011

Many construction companies are prevented from obtaining traditional bank and invoice finance due to the contractual nature of their work. Mention contracts to 99% of the the UKs based factoring and invoice discounting companies and they will run a mile.

Banks may provide overdraft facilities based on the strength of the business and the available security. Traditionally banks are secure overdraft borrowings  against bricks and mortar. Therefore the size of any available facility is limited by the value of the available security. More often than not this is not enough for a construction finance to obtain adequate working capital.

The good news is that there are a couple of of bespoke funding facilities that provide funding against contractual debts. The products vary from funder to funder and the level of funding available depends on the nature of your business and the the contracts that you have in place. Funding can be approved on  application rather than approved application depending upon the finance company involved. Some of the finance companies even have their own in house quantative surveyors to make sure that the amount of the application is realistic in terms of the work undertaken to date. The percentage of the prepayment will again vary depending on the nature of the business and the contracts. Whilst 80% funding is not realist on average funding between 50-60% of the outstanding debtor book is more realistic.

Are there alternatives to banks for large invoice discounting lines?

February 11th, 2011

In  our opinion yes. The problem with banks is that they blow hot and cold. They might do some fantastic invoice discounting deals in the good times however as soon as it starts raining they more often than not want their umbrellas back. A customer requiring a large facility of say two or three million may find themselves with restricted credit if their is any change in their performance.

We have seen this recently with very strong businesses that have seen profits drop but for positive reasons such as investment in new equipment and premises. The fact is the banks don’t always like to see a drop in performance irrespective of the reasons. Comined with restructuring and merging with the high street big banks you will find a very erratic approach to their lending criteria and possible clipping of facilities.

The good news is that there are alternatives to the high street banks. During the good old days, the recession and now the slow recovery these alternatives have always taken a consistent approach to their lending criteria. These are specialist invoice discounting companies , whilst funded by big lessor known merchant banks have their own autonomy and there is enough variety to cove most situations. A £3.0m facility is a drop in the ocean for a couple of these funders. At £3.0m plus even some of the high street banks might start getting a bit jittery. It appears that the banks want to collect as much money in at the moment rather than lend it out.

 
 
 

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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