Payroll Finance sounded too good to be true. Unfortunately that is exactly the case. Smartflow Payroll Finance is now in administration. Although an unsecured payroll finance facility appeared very attractive perhaps it was always destined to fail or is it another victim of the credit crunch?
Payroll funding provided a finance facility with up to two months of a businesses gross payroll. For example if the gross payroll was £100k a facility of up to £200k may have been possible. On the basis no personal guarantees were required from the directors the facility provided a viable alternative to bank overdrafts. It also provided an alternative for busineses that were unable to use factoring or invoice discounting facilities as a means to fund its working capital requirements. Furthermore as Smartflow was providing a service they were in fact a trade creditor and as such it did not affect any of a customers banking covenants.
As with any of these specilaist funders Smartflow will have gone into the market to borrow funds and lend them to their customers at higher rates. Therefore the rates were expensive, howver as the facilities were unsecured they were certainly not excessive. It is my guess the high rates attracted the poorer covenants and it would only take one or two deals to fall over and the rest his history.
The problem now is that the demise of Smartflow potentially leaves many customers with a funding gap. XL Business Finance, as a specilaist independent broker has been busy helping customers restructure their finances. In extreme cases we have recommended that advice be taken from a corporate recovery specilaist who can help with any VAT and PAYE arrears which may have occurred. Refinancing existing machinery is always an option but is only workable if there is value in the equipment. Alternatively funding via the Enterprise Finance Guarantee (EFG) scheme may be possible. Obviously factoring or invoice discounting is always an option. Even if you have been told you are not eligible it is always worth contacting us because there are many specilist funders capable of doing deals the high street banks dont want to fund.
