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Declined Finance

Wednesday, September 9th, 2009

Finance companies and banks are still short of capital. They all tell you they are open for business but in reality they are still short of cash. In our opinion are they are looking for reasons to decline deals rather than agree them. In short it is simple supply and demand. As a result interest rates available in commercial lending do no really reflect the current low bank base rate. If you have been declined finance a good independent finance broker may be able to help you source finance. There are still a number of lessor known finance companies who are actively growing their books and very much open for business.

If you have been declined finance by a bank it could be possible you are caught between a rock and a hard stone. Businesses investing in capital equipment may find that their profitability and balance sheet is not strong enough to justify a high street finance or bank lend. There are very few near prime funders that will take a few especially if the equipment is not a traditional piece of kit with a good residual value. Asset lenders are still very much open for business. However they will only lend against a professional valuers forced sale value typically at 80% loan to value. Interests rates are much high than the banks and nearly all deals require the directors to provide a personal guarantee. IF there is not enough value in the assets being financed it may be possible to use existing unencumbered equipment to provide additional security. Next step would be to look at taking a charge over property. Not what you want to here I know but it is very much a lenders market!

Tags: independent finance broker
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HMRC Arrears?

Tuesday, September 8th, 2009

Her Majestey’s Revenue and Customs have in many ways become the nations bank. Any business that is struggling will probably have fallen into arrears with PAYE and National Insurance. Up until recently HMRC have taken a lenient approach and many businssses have been able to negotiate an arrangement to pay any arrears without too much difficulty. Is the tide about to change?

Once upon a time a reputable firm of accountants specialising in corporate recovery were best suited to negotiate with the HMRC on your behalf. Their expertise in this area ensured the best possible deal was struck with the HMRC in terms of paying back any arrears. A plan carefully monitored by the corporate recovery firm ensured the agreed plan would have the best possible chance of success.

However in the recent recession it appears that the government have been taking a lenient approach and many firms have been able to negotiate their own deal with HMRC. In many circumstances the deal that has been negotiated direct has been just as good as a corporate recovery firm would be able to do themselves. Therefore it is difficult to see how a corporate recovery firm could add any value to the proceedings.

However it appears that the HMRC are beginning to take a more hard line approach. It may be because so many of the arrangements are failing or a more hard line approach is being demanded from the top. No one really knows. The fact of the matter is that in the last month or so a more hard line approach is being taken. Once again a deal negotiated wvia a decent corporate recovery specialist with a proper formulated plan will ensure the best possible chance of survival and success.

Tags: HMRC Arrears
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Commercial Mortgages and Bridging Finance

Monday, 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

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Are banks doing enough?

Thursday, 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.

Tags: invoice discounting, invoice financing
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Finance in a recession

Wednesday, 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.

Tags: business financing, Factoring
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Payroll Finance

Thursday, 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.

Tags: Factoring, invoice discounting, Payroll Finance
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Financing Digital Equipment

Thursday, 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.

Tags: refinancing existing equipment
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Stocking Finance

Wednesday, 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.

Tags: Factoring, invoice discounting, stocking finance
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Obtaining a Commercial Mortagage in a Prepack

Tuesday, August 4th, 2009

Obtaining a commercial mortgage in a prepack could be an opportunity to purchase your own business premises for a significantly reduced amount. A prepack is effectively a pre organised administration. The day after a business goes into administration the directors purchase the old business off the administrator via a new company in a prearranged deal.

Although high street banks and finance companies often take a dim view of such transactions in our view it is provides the business with a clean break and the opportunity to to clear out the dead wood. Unfortunately there will always be casualties however surely a new business trading has got to be better than no business trading at all.

It is certainly possible for a the phoenix company to trade without doing an immediate deal on the property. In fact we have seen deals negotiated with the former bankers whereby the business pays a monthly rent at a much reduced amount compared to the monthly mortgage. In these difficult times commercial properties are being valued much lower than they were 12-18 months ago. Most of the lenders are keen to get some cash in the door so the situation enables the new phoenix company to make a cheeky offer. We are currently seeing businesses purchasing their own commercial property from the administrator for a much reduced amount. Although the high street banks are unlikely to finance the property in the new co there are still one or two building societies and second tier funders providing commercial mortgages. No mortgage lender will provide a facility against the value of the property. In all cases serviceability and cash flow must be proven.

Tags: commercial mortgages
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VAT & PAYE Arrears?

Monday, August 3rd, 2009

It appears more and more businesses are falling into arrears with PAYE and VAT. Although the majority of customers we help appear to be busy in terms of a full order book and reasonable sales the biggest problem is with cash flow.

Their customers are telling them they can’t pay because their customers can’t pay and so on and so forth. The lucky businesses might be able to go to their bank and obtain an increase in overdraft facility, however we are seeing more and more cases where the bank has promised an increase in overdraft and failed to deliver. Factoring or invoice discounting may release much needed working capital and it is even possible to refinance existing equipment to release equity to provide cash injection.

So what happens if there are no further means to release cash? If there is a significant amount of PAYE and VAT arrears it might be possible to obtain an arrangement with the Inland Revenue and Customs. It can be argued that a corporate recovery specialist will do a better job and can act as an intermediary between your business and the relevant authorities. In extreme cases a creditor’s voluntary arrangement or an administration might be more beneficial to the business going forward.

XL Business Finance has a great deal of expertise in providing funding in the event of an administration. The most important aspect is to appoint a friendly factoring or invoice discounting company before the administration. Even if this means taking out your existing factoring or invoice discounting company. The new factoring company will then appoint a friendly administrator to ensure the directors of the business are in the best possible position to buy the business off the administrator.

These deals are known as pre packs and are growing in popularity. In the current economic climate there are obvious advantages and businesses are using the recession as an excuse to clear out the rot and give the business a new lease of life.

Tags: Factoring, invoice discounting
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