Following his last column on the government initiatives, and what it means to be classed a ‘viable business’ at the moment, this week Lending Partnerships Manager Mike Stanley is looking more generally at lending facilities.
In particular, why it’s important to invest time into looking at your existing finance solutions – and question if you’re really getting the best offerings available.
Read on to find out how switching could potentially save your business some serious money…
“As the saying goes, “cash is king”. The number one reason why most businesses do not make it is due to a lack of cash in the bank.
“I’m often surprised at how many businesses don’t review their financials and in particular their finance facilities. They often fall into the trap of getting something set up and then just using it forever. Now think about yourself away from the business. Every year, you search for the cheapest car insurance or the best broadband solution. So why do business owners not apply this logic to their businesses?
“It can often seem too much of a hassle to look into, apply for and actually switch or change your product. With a wide world of alternative lenders and options though there could be much better options for you from a cost, ease-of-process and better customer service perspective. So it really is worth investigating.
“Today I will be looking at some of the products and services available to business owners and how they could potentially benefit your business – and its cash position.
“For a lot of businesses their invoice finance facility is the lifeblood of their cashflow. The product is designed to help when you trade on credit terms. Most businesses cannot afford to be without cash for more than 90 days which we are seeing more than ever during lockdown.
“But do you have the best facility available to you?
“More often than not you may take a facility from your bank. You’re not alone in doing this and banks can be very competitive due to the cost of their funds. But cost is not everything when it comes to invoice finance.
“What if your bank is only offering you 60-70% against your invoices. How much could having a higher percentage potentially benefit you? There are lenders who will offer up to 90%. As I said at the beginning, “cash is king”, so this could be a lifesaver for your business.
“You may also be stuck with limitations against one customer if the majority of your business comes from a single customer. Again there are lenders who may not put in place these limitations. Finally there is cost. You may actually find your bank is not the cheapest and as a new customer you may find yourself being offered a competitive offer.
“Now, ultimately, your bank may still end up offering you the best product across all these areas. The important thing is to do your research to ensure you’re making an informed decision. It costs nothing to check.
“A lot of business owners I speak to often buy some type of asset during a given year. But too often when I speak to them they want cash in their bank/hand rather than looking at an asset finance offering. Not to say this is wrong but it is certainly worth at least looking into an asset finance solution.
“As the lender is lending against the asset it allows them to offer bespoke offers. For instance, you could have a balloon payment, meaning a lower monthly payment and a one off bigger payment at the end of the agreement. So you could save yourself a considerable amount each month with this option.
“Also, some lenders will allow you to pay over a seven year period rather than the traditional term times, which would also mean a lower monthly payment.
“Finally, it is worth speaking to your accountant as some forms of asset finance will carry accounting benefits.
“The second part of asset finance that is worth looking into is what we call refinance. This is where you can use existing assets within the business to raise money. This could help you to invest in other areas of the business or look at some restructuring to help with your cash.
“It can also be helpful when you have some assets that have existing finance on them. You may initially have been given a slightly more expensive rate as you were a younger business at the time. Whereas now, you might be in a stronger position to get a better rate and therefore restructure your asset finance or outstanding loans to save on your monthly outgoings.
“I once helped a customer save £6,000 a month on his outgoings. That’s over £70,000 a year he could spend elsewhere.
Revolving credit facilities
“Do you have an overdraft with your bank? Is it enough? Not having access to essentials funds will strain any business and we have heard many stories of customers having their overdraft facility reduced or removed. This would cause a nightmare for any business. Even those that do have one will often find at times their facility is not big enough to support their ongoing needs.
“In some cases, to increase or have an overdraft, banks will request security to secure the facility. There are alternatives in the market which could allow you to have an additional facility similar to your overdraft to keep cash available for when you need it.
“Unlike loans, you only pay for what you use. Business owners will often have speed bumps where they need some emergency money. This is where these additional facilities can help.
“Remember you only pay for what you use so it can sit in the background.
“You may have taken a loan out earlier in the business over a shorter term, or potentially taken a loan at a more expensive rate. As your business grows and matures more options will become available. This means you may be able to borrow to settle off an existing loan or loans to get a better rate of interest, a longer term loan and overall a lower monthly payment.
“Don’t be in a position when you are over paying each month when there could be options out there to put you in a better position.
“You may find that you have all the best facilities you need which would be a great position to be in, but it is certainly worth taking the time to review your current offerings and ensure this is the case.
“As stated above there are always options available that might benefit you more and there are facilities that might be more beneficial than what you are currently using.
“Take the time to check and you can sleep better at night knowing that you are in the best financial position possible.”
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