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More lenders accredited under Coronavirus Business Loan Schemes

The British Business Bank has approved six more lenders for accreditation under its Coronavirus Business Loan Schemes.

The new Coronavirus Business Interruption Loan Scheme (CBILS) lenders are 365 Business Finance, FOLK2FOLK, Handelsbanken, LendingCrowd, Maxxia, and Nucleus Commercial Finance, who will be able to provide financial support to smaller businesses across the UK that are losing revenue and seeing their cashflow disrupted, as a result of the Covid-19 outbreak.

Close Brothers, ThinCats and HSBC Bank plc, a separate entity from the previously-accredited HSBC UK, have been accredited under the under the Coronavirus Large Business Interruption Loan Scheme (CLBILS). They will be able to provide finance to midsized and larger UK businesses with a group turnover of more than £45m (the upper limit for the existing smaller-business focused CBILS).

To find out more about how we can assist you with your Business Loan requirements, please click here to get in touch

Coutts and Arbuthnot Latham will join the other 21 Bounce Back Loan Scheme (BBLS) lenders who have been accredited since the scheme opened.

Keith Morgan, chief executive at British Business Bank, said: “Our accredited lenders continue to see high levels of demand for Covid-19 business loan schemes. Accrediting these additional finance providers means further support for smaller business customers and continues the British Business Bank’s long-term objective to offer more diverse sources of finance to smaller businesses.”

According to government-published statistics, more than one million businesses have to date benefitted from more than £42bn in loans and guarantees through the British Business Bank’ schemes.

By Stephen Farrell

Source: Insider Media

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Small business loans will “give hope to thousands”

New government loans announced for small businesses will “give hope to thousands” as they fight to survive the impact of the coronavirus pandemic.

That is the view of the Federation of Small Businesses, who welcomed Chancellor Rishi Sunak’s announcement of the micro loan scheme which provides loans of up to £25,000 with a 100 per cent government guarantee.

Making the announcement yesterday, the Chancellor said the bounce back loans – which are capped at 25 per cent of turnover and have a streamlined application process – will be available from Monday.

And FSB national chairman Mike Cherry said the announcement was vital for those firms not covered by the existing coronavirus loan scheme.

He said: “The decision by the Chancellor to listen to our recommendation will give hope to thousands.

“The headline terms will be hugely welcomed by the sole traders and micro businesses that make-up 95 per cent of the small business community.

“Removing the need to provide forecasts marks an important step forward – small firms cannot be expected to predict the future in this climate.”

Mr Cherry called on the government to ensure the delivery of the loans was administered correctly so help reached the right people in time. 

”From here, we need the right delivery,” he said. “The fast-track system must be established by next Monday with money delivered 24 hours after a successful application as promised.

“All those who have been declined a small Coronavirus Business Interruption Loan Scheme facility should now be written to with the offer to re-apply via this new system.

“Many small businesses have had to pay March and April’s payroll, on top of other overheads, with no revenue coming in at all. This announcement promises to change that fundamental lack of access to working capital.”

He continued: “In the long term, we need to protect the competition achieved in the small business lending market that so many have fought so hard to secure.

“At the end of this crisis, non-bank lenders are going to be key to economic recovery as part of a thriving small business finance market that does not just rely on the big five banks.

“Equally, the big banks must ensure they are in a position to facilitate a large a number of small business loans. Some of their systems are already creaking under the strain.”

The loan scheme was also welcomed by Business West, who represent the region’s Chambers of Commerce, but Gloucestershire director Ian Mean warned that the Chancellor’s statement to the House of Commons contained some less welcome news.

He said: “The good news will be very welcome by small businesses so worried about the delays experienced by many of them in applying for cash through the government’s much-heralded Coronavirus Business Intervention Loans Scheme.

“But there was good and grim news. The Chancellor told the Commons that ‘survey evidence suggests that a quarter of firms have stopped trading’.

“He made no amplification of that alarming figure – many of them might have just paused trading, but this figure must be of great concern for our economy.”

The new loan scheme is available for firms which existed on March 1 with money due to be in accounts around 24 hours after an application is approved.

Applications are short and can be submitted online from Monday with basic details to confirm a business is eligible with tax returns required in a small number of cases.

While the Government will cover interest and fees for the first 12 months, businesses will pay back the loan at what the Treasury describes as ‘very low’ interest rates over around five years.

Meanwhile, the Chancellor has dismissed calls from church leaders for companies that avoid UK taxes by routing profits through tax havens to be barred from receiving coronavirus support packages.

Former Archbishop of Canterbury Rowan Williams was among the senior clergy who called on the Government to follow Denmark, Poland and France in refusing to help companies registered in tax havens.

A spokesman for the Treasury said: “HMRC has robust tools to challenge businesses who avoid paying their fair share of tax.

“That is the right way to challenge avoidance, not by denying support to British workers who pay their taxes and would otherwise lose their jobs.”

By Rob Freeman

Source: Punchline Gloucester

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Government launches £330bn coronavirus business loan scheme

The government has launched the first stage of a £330bn loan guarantee scheme for businesses, to help small and medium-sized firms borrow up to £5m to help them weather the impact of coronavirus.

“Any viable business” with a turnover of up to £45m will be able to apply to banks for an 12-month interest-free loan, 80 per cent of which will be guaranteed by the government under its Business Interruption Scheme, the Treasury said.

“We know that businesses are in urgent need of access to funding during these unprecedented times,” said business secretary Alok Sharma, who added that the scheme “will ensure that credit keeps flowing to where it is needed, when it is needed”.

Chancellor Rishi Sunak last week unveiled an unprecedented package of measures aimed at supporting businesses and employers struggling with the economic impact of coronavirus, including tax deferrals and an employee retention scheme.

The Treasury said this morning that further measures would be announced to ensure large and medium-sized businesses could access financing.

The Bank of England this morning announced the opening of a scheme to buy up debt known as commercial paper, issued by large businesses which had an investment-grade credit rating or similar level of financial health before the coronavirus pandemic hit.

BoE governor Andrew Bailey said the corporate financing scheme would “help businesses manage through this period of uncertainty”.

“Combined with steps taken by the government, this will help companies through this difficult time and support the needs of the people of this country,” he added.

Bailey said last week that the Bank would look at widening the financing scheme to firms with lower credit quality, or buying other financial instruments such as asset-backed commercial paper.

By Anna Menin

Source: City AM

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Coronavirus eating into SME cash

Over two-thirds of UK SMEs (69%) have reported significant pressures on their cash levels according to latest insights from business lender MarketFinance. This is in large part down to businesses paying for supplies earlier than anticipated because of Coronavirus-related stockpiling and fears of deeper disruptions to transport (road, air and rail) linkages.

Additionally, on orders and work that has been completed, payments are being delayed. Three-quarters (74%) of business owners reported invoices due to be settled at the end of February have not been paid yet (as of 10th March 2020) and that these were unlikely to be settled before the end of March 2020.

Over a third (36%) of business owners feared they won’t survive to Easter (6 weeks) if they were unable to secure some finance to bolster their business. Meanwhile, as economic conditions worsen, and with the possibility of widespread quarantine implemented across parts of the country, businesses will need to have financial and operational contingency plans in place to protect jobs, industry and communities.

Anil Stocker, CEO at MarketFinance, commented: “The impact of the Coronavirus spread is being felt by SMES across the UK as finance and supply chains are disrupted. At the best of times, only around half of these businesses are cashflow positive. Today, businesses are feeling a palpable sense of helplessness and isolation and there is a lack of specific information on how to cope with the crisis.”

“At the moment cash is king and if businesses are being starved of this cash, it will leave them stranded. Whilst policy efforts play out to contain the spread of Coronavirus, business owners should brace themselves for some turbulence and have a prepared mindset for the scenarios ahead.”

“Rishi Sunak has a golden opportunity to prove that he is a champion of UK SMEs. There is a role for government to work with businesses, banks and other lenders to ensure a resilient economy. It will be the smallest businesses that are most hit as they have the least bargaining power in global supply chains. They could, for example, give businesses VAT / tax ‘holidays’ to ensure that they have enough money to cover immediate costs.”

Source: Business Money

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Businesses turn to alternative money trees as big bank lending stalls

Smaller businesses are turning to alternative ways of financing in much larger numbers than five years ago, as traditional lending flatlines, according to a new report.

Marketplace business lending, which used to be called peer-to-peer, is now providing more than £2 billion a year to British small and medium sized businesses (SMEs), the British Business Bank said.

It is a 374% rise since 2014, the year the bank was set up by the government.

Meanwhile equity finance, providing money in exchange for a stake, has jumped by 131% over the same period.

Since it was set up the Business Bank has provided support to success stories such as cybersecurity outfit Mimecast, and fintech firms Transferwise and Revolut.

Earlier this week Revolut announced it had raised another 500 million US dollars (£387 million), giving the business a valuation of around £4.3 billion.

But while alternative financing has boomed in the last five years, gross lending from major banks to smaller businesses has remained largely flat, growing just 1.2% in real terms.

Gross bank lending reached £56.7 billion last year.

In 2014 it was £53 billion.

Last year 52% of smaller businesses that wanted financing looked beyond the Big Five banks, according to the research.

There is evidence that the flatline in traditional lending is due to demand from businesses drying up, British Business Bank chief executive Keith Morgan told the PA news agency.

More than 70% of them say that they would be willing to forego some future growth rather than take more loans.

Mr Morgan said that small business confidence seems to have rebounded in recent months.

“We are seeing some indication that confidence has rebounded given the additional clarity that is now present with the outcome of the general election and the increased understanding of the course with respect to Europe,” Mr Morgan said.

However it is too early to say whether that will increase demand for finance, he added.

Business Minister Paul Scully said: “Finance for small businesses is essential to our goal of making the UK the best place in the world to start and grow a business.

“This report will shape our support for business leaders across the country, so they can drive innovation and growth.”

By August Graham

Source: Yahoo Finance UK

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Crowdfunding 101: How UK Businesses Can Use Crowdfunding As A Viable Alternative Finance Option

Over the last decade, many new types of alternative finance have emerged in the UK market. Some of these have built upon the traditional methods of funding a business, while others have quite successfully disrupted the market to a certain degree. Crowdfunding belongs to the latter category. Getting a group of individual investors to pitch in together to fund a business isn’t something new, but crowdfunding, with the help of available technology, has made it possible for thousands of people to back a product, a service or even just an idea in their personal capacity.

What Is Crowdfunding?

Crowdfunding is exactly what it says it is. Up and coming businesses (especially the ones that find it tough to raise finance via traditional channels) share their ideas, business plans, product prototypes and everything else that is relevant on a crowdfunding platform and individual investors decide if or how much they want to contribute. The investors, in return, can get equity in the business, dividend from the revenue or royalty from each sale made, depending on the terms of contract. It sounds quite simple, because it is. The only decisive factor here is the merit of the idea being pitched.

The UK Crowdfunding Market

Crowdfunding, as we noted earlier, is exciting for both businesses and investors. However, these are still early years, and it would be unfair to compare crowdfunding with other finance/investment avenues such as business loans or commercial finance. It is estimated that from its inception in 2011 to 2018, crowdfunding has contributed over £600mn to UK businesses.

Is Crowdfunding The Right Choice For Your Business?

Not all businesses are built the same. Crowdfunding can, however, be extremely helpful in getting your business off the ground. Many young businesses and start-ups use crowdfunding just to get through the proof of concept phase (building a prototype, sending products out for testing, acquiring relevant licences and clearances, and so forth). Crowdfunding may be the right choice for your business if:
  • You only need small capital, but you need it fast,
  • Your products/ideas are relatable and solve real life problems,
  • You can’t raise money via other, more private finance options like personal loans, overdrafts and lines of credit.

Types Of Crowdfunding

Most crowdfunding pitches belong to one of the following types:

Equity Based Crowdfunding (Investment Crowdfunding)

This is, by far, the most important type of crowdfunding. As a business owner, you ask for and receive funding from investors who, in return, receive a proportionate stake in your business (in the form of equity). Equity based crowdfunding is ideal for businesses looking to raise a significant sum of money upfront. This is very similar to syndicated angel finance (please read through our guide to angel finance to learn more).

Equity Crowdfunding And Tax Reliefs

Equity based investments in qualifying businesses are eligible to receive tax reliefs (as applicable) under the EIS and SEIS.

Credit Based Crowdfunding

Credit/loan-based crowdfunding is nothing but peer-to-peer finance (P2P finance). Contributors here act as private lenders who lend you money upfront via the crowdfunding platform you choose. You are then required to repay the crowdfunding platform at a pre-set interest rate. This is a good alternative finance option for businesses that don’t want to part with equity.

Reward Based Crowdfunding

Reward based crowdfunding allows you – as the borrowing business – to reward contributors in a variety of ways. The most common reward is early access to your products/services.

Donations/Charity Based Crowdfunding

Not all businesses can afford to pay their contributors back. Social enterprises can raise money in the form of donations/charity and use it to fund their business goals.

How Does Crowdfunding Work?

Crowdfunding platforms play an important role here. There are dozens of crowdfunding platforms presently operational in the UK. Seedrs and Crowdcube are two prominent examples. Once you know what type of crowdfunding you want to go for, you will need to make public a few important details about your business.
  1. What you’re offering in terms of products/services
  2. How they make a difference
  3. If you have any intellectually protected assets
  4. How much you want to raise
  5. How much you’ve already raised from other means
  6. How you plan on using the funds raised
  7. What the timeline of progress will be
  8. What you’re offering in return

Is Crowdfunding Regulated In The UK?

Most crowdfunding activities in the UK are now regulated by the Financial Conduct Authority. Loan-based crowdfunding and investment/equity-based crowdfunding are regulated heavily considering the risks involved. The FCA also regulates crowdfunding platforms in line with their policies.

Things To Avoid While Preparing Your Crowdfunding Pitch

As things stand today, there’s no way really for us to tell what percentage of crowdfunding pitches manage to meet their goals. We do, however, have observed a few key trends that seem to be common denominators among campaigns that fail. Here are the things that you may want to avoid while preparing your crowdfunding pitch:

Confusion And Chaos

This is probably the biggest red flag for any investor. When you prepare your pitch, you need to be as sure as you can about what you’re pitching. Your pitch needs to speak to the investor and answer their questions before they have the chance to even ask them.

Bad Ideas

There’s no way you can sell a bad idea to people and hope to succeed. Paying enough attention to whether the idea is viable, profitable and scalable should be at the centre of your considerations.

Bad Valuation

Many start-ups and young businesses tend to overvalue their ventures. It helps if you bring on board experienced professionals who can evaluate your business for you without any bias. A reasonable evaluation means that potential investors can see how it makes sense to invest.

Crowdfunding Alternatives – Have You Considered These?

Raising money on your own – through personal finance and from your friends/family – is usually the safest bet when dealing with small amounts. However, if you want your business to really take off, you need to take commercial finance more seriously. There are quite a few commercial finance solutions available in the market that, when utilised properly, can prove to be much more affordable and much less tricky than crowdfunding.

Business Loans

Raise money as and when you need it and use it towards the business expense of your choice – from fulfilling purchase orders to settling existing loans.

Asset Finance

Finance the purchase/lease of expensive equipment through fast, affordable and easy asset finance.

Angel Finance

Bring experienced investors on board and benefit from their expertise and industry connections.

Specialty Loans

Use specialty loans like HMO finance, development finance, bridging loans, BTL mortgages and more to raise money from specialist lenders at low interest rates. Commercial Finance Network, a leading whole of market broker in the UK, makes it easy for you to match with UK-wide lenders. Every commercial finance application we receive is decided upon within 24 hours – that’s our promise! To know more or to request a call back, call us on 03303 112 646. You can also fill in this short online form to get started.
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Angel Investing 101 – Everything UK Start-ups & SMEs Need To Know About Angel Finance

The world of modern business, despite having achieved incredible heights over the past century, still values ideas that are worth pursuing. Creativity, innovation and passion have always been at the very core of successful businesses. This is apparent when you look at the start-ups that ‘make it’ to the top. And no, we aren’t just talking about the big tech names – even a relatively modest, local restaurant that offers something new, exciting and unique has the potential to make it to such a list. At the same time, it must be conceded that not all ideas are fortunate enough to find the financial backing they deserve, especially from the traditional channels of business finance. Not all banks want to take the risk, not all venture capitalists have the time to go through thousands of pitches they receive every month, and not all high-street lenders understand how the whole thing works. This is where angel investing comes into the picture.

What Is Angel Investing (Angel Finance)?

Angel investing is an important type of alternative finance options available especially to start-ups and SMEs in their early stages of growth. Unlike traditional bank loans or business loans, angel investing comes from an individual (the angel investor). Angel investors are typically high net worth individuals who bring on board a great deal of experience in various business operations. “Combine the angel investors’ ability to fund your ideas along with their experience and industry connections and you have a perfect launchpad to help your business grow.”

The Angel Investment Market In The UK

Angel investing has always been a popular choice among businesses because of its simplicity. Things took a turn for the better as the Enterprise Investment Scheme was introduced in 1993. Since then, over £18 bn has been invested through the EIS alone. The yearly projections by The UKBAA estimate that in 2020 over £2 bn will be invested in start-ups and pre-revenue business models. Angel investing has also received a boost from an unlikely ally: the pop culture. Popular television shows like Shark Tank and Dragon’s Den have added a touch of glamour to the whole market and helped many first-time investors take the leap of faith and invest their time and money in local start-ups.

How Does Angel Investing Really Work?

As far as the UK angel investing market is concerned, the largest share of investment comes from small to medium scale investors who want to achieve two goals with such investments:
  1. Put their savings/disposable earnings to the most profitable use by investing in a venture that they can understand and help
  2. Claim important tax savings through the EIS.
For most business sectors, angel investors can claim up to £300,000 in EIS tax relief, while businesses cannot raise more than £5mn per year through the EIS. Given these numbers, it’s easy to see why most angel investments lie in the £10,000-500,000 range. Syndicated angel investments, in which two or more angel investors team up to fund a business, can see this number go as high as £2mn.

Angel Investments Are NOT Loans

If you’re looking to fund your start-up with the help of angels, this is the very first thing you need to know: angel investments are nothing like business loans. In exchange for the money your business receives, you’ll be required to give up equity to the investor. The amount of equity you ‘sell’ depends on the investment appetite of the investor.

The Risk

Angel investments are inherently risky for the investor since they have to put their money on the line. The risk is mitigated by the potential of the business in question to provide returns that are significantly higher than those provided by other investment options.

Angel Investments And Equity

The only potential downside to angel investment, from the business owner’s point of view, is the sharing of ownership in the business. Most businesses, in their early stages, aren’t ready to give up a significant chunk of equity. Angels, however, are open to negotiations when it comes to striking a mutually beneficial deal. Moreover, angel investors looking to make the most of EIS/SEIS tax reliefs cannot hold more than 30% of the equity. It’s common for investors to ask for equity in the range of 5 to 20%.

Has Your Business Got What It Takes?

It’s not always easy to predict what an angel investor would look for in an investment opportunity. From what we, as a leading commercial finance broker, have observed over the years, there’s a recurring theme that you may want to judge your business by.

Real Life Value

Angel investors usually prefer businesses that aim to add real-life value. Products and services that solve real-life problems always make for a good pitch.

The People

Angel investors, being individuals, prefer to work with people who are motivated and prepared to do what it takes to succeed. It’s not enough to just have an idea that works, it’s equally important for them to know that you believe in this idea. It’s probably the most intangible aspect of this discussion, but it’s as important as any other.

The Numbers

Investors, regardless of the type of investment in question, want to know that you have all your numbers figured out. This includes creating a well thought out business plan, among other things.

The Viability

Questions to ask yourself: Is your business idea viable? Is your main selling point intellectually protected? Will there be any potential conflicts with other parties?

The Future

Questions to ask yourself: Is there enough room for growth? How do you plan to scale your business? Will the profitability/viability get affected at a larger scale?

The Proof

Everything you do in terms of proof will count in your favour. From an intensive market survey and proof of concept to purchase orders and testimonials, just to name a few examples. While it’s good to have a business that works not just in theory, it’s not a prerequisite. This eventually comes down to how the promising your business idea is in the investors’ eyes.

The Exit

If you put yourself in the investor’s shoes, you can see why an exit strategy is important. Investors do not generally want to stay on board for decades. They prefer to have an exit window of 5-10 years in which they can make the most of their investment. How you plan on providing them this exit becomes, in this context, an important question.

Angel Investment And Business Stages

As we noted earlier, angel investments are best suited for start-ups that are in their early stages of development. There are three main business stages that are most likely to secure angel finance.

Pre-Revenue Stage

This is the earliest stage for an investor to come on board. Pre-revenue businesses generally have not much to stand on except the power and potential of the idea. It helps if this idea can be/is intellectually protected, has obvious benefits and is proven to work in real life. Quite naturally, pre-revenue angel finance is fraught with risks, and investors may want a sizeable share of equity for their money.

Pre-Profit Stage

Pre-profit businesses are the ones that have already set up shop (so to speak) and started trading. The revenue they generate isn’t enough to cover their expenses and debts. At this stage, investors have enough evidence to visualise the profitability.

Post-Profit Stage

Post-profit businesses are the ones that have not only started trading but also gone beyond the break-even point. Such businesses rarely look for angel finance, but when they do, they have a very good chance of securing it.

Commercial Finance Network and Angel Finance: How We Can Help

As a leading whole of market commercial finance broker, Commercial Finance Network is best placed to match your business with angel investors who can offer invaluable industry experience, funding and expertise. Our panel of private investors consists of UK-wide angels with years’ worth of investing experience. When you work with us, we make sure that your ideas – they may well be the next big thing – are placed in front of the right investors. Angel investing is not just about money, it’s about the priceless experience and expertise that can make all the difference in the world. To know more or to request a call back, call us on 03303 112 646. You can also fill in this short online form to get started.
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Fears for SME retailers as banks cut lending

Bank lending to small and medium-sized retailers has fallen by 6% since the 2016 Brexit vote, while large retailers have benefitted from a 20% increase in lending.

New figures show that funds lent to SME retailers has dropped from £15.6bn to £14.7bn in the three years, accountants and business advisors, Moore. Funds borrowed by large businesses has increased from £31.5bn to £37.8bn during the same period.

In a statement, accountancy firm Moore said: “The figures suggest that some banks are favouring big businesses, [which] are typically seen as more able to repay any funds borrowed… With big retailers increasing their borrowing so aggressively, that means less finance for smaller retailers.

“As well as needing finance to see them through the current volatile trading conditions, SME retailers also need to invest to ensure their stores and overall offering remain contemporary. Without that investment, smaller retailers risk losing more ground to bigger competitors and to e-commerce.”

It also said smaller-sized businesses need funding to help prevent them from going into administration, with the number of retail insolvencies up 31% from 951 in 2016 to 1,252 on 30 September 2019.

Bridget Culverwell, director at Moore, added: “It is a real worry for smaller retailers if banks are treating them less favourably than larger retailers.

“With the final outcome of Brexit still uncertain, it is expected that banks will continue to be apprehensive to lend to the sector in the months ahead.

“Small retailers are still big employers. They occupy space in high streets where larger retailers are not present and often not interested in being present. If too many small retailers fail, then that leaves those parts of town centres with the highest level of vacant shops even emptier.”

BY KATIE IMMS

Source: Drapers

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Merchant Cash Advance 101 – Everything UK SMEs Need To Know About Business Cash Advance #1 – Alternative Sources of funding for SMEs

Running a business, of any size and nature, eventually boils down to how well you can handle the numbers. There are, of course, the important calculations about growth and reinvestment, but, as far as the day to day operations are concerned, it’s all about managing the cashflow.

Larger businesses have it slightly easier in this regard. Bigger pockets usually ensure better credit, thereby also implying that such businesses rarely have to borrow in order to look after everyday expenses.

The same, however, cannot be said about an SME. SMEs have a whole different set of questions to answer, and the answer usually lies in how easily, how conveniently, how fast and how affordably they can borrow money. This is where alternative sources of finance come to the fore as many of them have the ability to mould themselves to the exact needs of your business.

Merchant cash advance is among the most popular alternative funding sources for UK SMEs, and we will try to take stock of its features in this article.

What Is Merchant Cash Advance?

Merchant cash advance, also known as business cash advance in many circles, is a fast, unsecured business loan that helps SMEs tackle the cashflow problems. Merchant cash advance is a cash injection that is tied to your future debit and credit card sales. In that sense, merchant cash advance or business cash advance is a good source of alternative funding for B2C SMEs.

Merchant Cash Advance Definition

Merchant cash advance is an unsecured business loan that is repaid through the future debit and credit card sales you make.

Unlike other business loans and overdrafts, there are no fixed monthly repayments to make. There is no APR to worry about either. The equation is fairly simple – the more sales you make, the faster your loan gets repaid. This also means that if you’re experiencing a particularly slow month, your repayments will be proportionately smaller.

Each merchant cash advance account is tied directly to your card terminal (point of sale). So, it’s important that a healthy share of your sales comes through debit/credit card transactions.

Merchant Cash Advance – How It Works

Merchant cash advance is inherently different from other unsecured business loans in that it is based directly on the profitability of your business. Lenders, while assessing the potential of your business, will take a close look at the performance of your business – especially the card terminal transactions. Due to this peculiarity, it becomes important to understand how merchant cash advance really works.

The Process – Take A Moment To Familiarise Yourself With How MCA Works

Merchant cash advance lets you borrow money as and when you need it – but it’s technically not really a loan (we will get down to that part shortly). For now, we suggest you take a moment to understand the process and how it will impact your cashflow.

  1. Any SME that makes card terminal sales can apply for a merchant cash advance. Commercial Finance Network makes this process incredibly easier and faster.
  2. The lenders take a look at the recent history of card based transactions and decide your affordability. This is similar to other forms of credit and loans.
  3. Once the lender determines your affordability, you’re presented with a cash advance offer.
  4. After you accept the quote, the money is transferred directly to your bank account. This process is smooth and involves minimal paperwork. Working with an experienced whole of market broker like Commercial Finance Networks means that you will have the added advantage of speed. You can expect to see the funds in your account in 1-2 business days.
  5. You will start paying the money back to the lender as soon as the repayment period kicks in. The repayments are usually based on your daily business (5-25% of your daily card sales, depending on the offer you’ve agreed to).
  6. There is no conventional interest rate or APR. You’ll essentially be selling a fixed percentage of your future sales to the lender until the advance is fully repaid along with the fees and charges. An upfront interest amount is calculated using the “factor rate”.

Merchant Cash Advance Factor Rate – What It Is & How It Is Calculated

Every MCA quote you will receive will specify a certain “factor rate”. This number essentially replaces the traditional interest rate and tells you everything you need to know about the cost of borrowing.

The factor rate is expressed as a single number that typically ranges between 1.1 and 1.5 (depending on the health of your business and your affordability). For example, if you’re borrowing £10,000 from a lender and the factor rate is 1.1, you will be required to repay £11,000 in total. It’s really as simple as that.

There are a few things to consider here.

The factor rate differs from the APR/interest rate on two counts. Firstly, it is a fixed number that tells you exactly how much you will need to pay. Secondly, it has nothing to do with the balance of the advance that’s unpaid. It doesn’t matter how quickly you pay the MCA off, you will still pay the amount determined by the factor rate.

Merchant Cash Advance Is Not Really A Loan

In the traditional sense of the word, a loan is the amount you borrow and pay back as a function of the interest rate and time. Therefore, it should be easy to see why it’s not a good idea to treat a merchant cash advance as a loan.

As we mentioned earlier, when you borrow money using an MCA, you essentially agree to sell a part of your future revenue to the lender. The lender assumes much less risk here, even though it’s an unsecured mode of credit. We would go so far as to argue that a business cash advance/merchant cash advance is an unsecured counterpart of revenue based alternative sources of funding for SMEs (for example, invoice finance).

How Much Can You Borrow?

Larger businesses usually don’t feel the need to borrow via MCA since they have at their disposal stronger lines of credit from banks and other lenders. SMEs, on the other hand, can borrow enough to tie up the loose ends, get the cashflow in order and access money to fund purchase orders/new business opportunities.

At Commercial Finance Network, we help UK SMEs borrow anywhere between £2,000 and £200,000 as a cash advance from our panel of responsible and specialist lenders.

Please note that the amount you can borrow will depend upon the following factors:

  • The nature of your business and the industry/sector you operate in
  • The average daily turnover (card terminal transactions)
  • The overall profitability of your business

There’s no need to feel overwhelmed by these factors – these are essentially the same factors that lenders will look at while assessing any other loan application.

Please read on to learn more about how we, at Commercial Finance Network, make it easy for you to apply for and get a merchant cash advance from UK-wide lenders.

Merchant Cash Advance – A Short Case Study

Being a leading whole of market commercial finance broker, we get to work with businesses of all sizes. This gives us a unique vantage point regarding the requirements of UK SMEs. The following MCA case study will help our customers and readers understand the practical importance of merchant cash advance as a financing tool.

We recently worked with a London based mobile food startup. Their business model was interesting and had already received a good deal of positive PR in local circles. However, at less than 18 months of age, the business had no history of credit to fall back on, meaning that they couldn’t borrow the money required to grow their business from banks and high street lenders. To receive more funding from investors they already had on board, they had to hit a monthly sales target – a target they couldn’t possibly reach without investing in a new point of sale (a financing catch 22 situation). This meant that they needed at least £20,000 to buy a new van and hire 2 more employees.

After understanding their unique situation, we forwarded their application to a specialist MCA lender who agreed to assess their business.

The following terms were drawn:

  • Cash advance: £20,000
  • Factor rate:20
  • Total amount to be repaid: £24,000
  • Average card sales forecast (per month): £9,000
  • Average card sales forecast (per day): £300
  • Percentage of daily card sales to be paid back: 33% (£100)
  • MCA repaid in around: 240 days (8 months)

As the borrowing business received the money in just about a couple of days, they were able to invest it back readily. This opened up an additional revenue stream for them, and as they reached the targets laid down by the investors, they were also able to access a new line of credit.

Merchant Cash Advance – Who Is It Suited For?

Merchant cash advance is suited for SMEs that:

  • Require money urgently
  • Register significant card sales on a daily basis
  • Operate in cash rich industries and sectors

Are You Eligible For A Merchant Loan (Merchant Cash Advance)?

You’re eligible for a merchant loan if:

  • You’re a UK based business that accepts card payments,
  • You have a merchant account,
  • You generate at least £2,000 in card sales each month (over a minimum of three months),
  • You are a registered business (sole trader, partnership or limited company)

Advantages Of Business Cash Advance (MCA)

Now that we’ve seen how MCA works, let’s now see what advantages it has to offer to the borrower.

1. It’s Fast

The most important advantage is the speed. When you work with an experienced broker and specialist lenders, you can expect the entire process to complete within a matter of hours. This not only saves you a great deal of hassle, it also lets you put the money towards the requirements as soon as possible.

2. It’s Flexible

Since there is no interest rate to worry about, you know how much you’re going to have to pay back. This makes merchant cash advance incredibly flexible. On a good day, you will pay more and on a slower day, you’ll pay that much less. In other words, you will never be put in a position where you have to stretch your finances thin just to make the repayment.

3. No Need To Draw From Your Cash Transactions

You will only pay back a part of your card sales. You will still have full control over all the cash sales you make during this period.

4. No Collateral/Security Required

MCA is an unsecured form of credit. You will not be required to raise a deposit or collateral to get approved.

5. Poor/No Credit Shouldn’t Be A Problem

Most lenders tend to approve merchant cash advance applications from SMEs that have poor/no history of credit as long as the business performance is promising.

6. MCA Works With All Major Card Terminals

All major card terminals and machines are compatible with the auto debit facility for card sales.

7. MCA Can Be Topped Up

Some lenders provide the option of topping up your existing MCA account based on your history of repayment and business performance. This allows you to borrow more as and when required.

Relative Shortcomings Of Business Cash Advance (MCA)

  • Merchant cash advance is not at all suitable for businesses that do not accept card payments.
  • Young businesses that have little to no history of card sales find it difficult to get approved.
  • While MCA helps you gain access to funds faster, it also means that your daily cash flow will be impacted as long as the advance isn’t fully paid back.

How To Apply For A Merchant Cash Advance?

Merchant cash advance is a specialty form of financing. As is the case with all such finance products, it’s always a good idea to work with specialist lenders. Generic high street lenders don’t have the expertise or experience required to make such deals work, and the borrower has to face the brunt in the form of an unreasonably expensive offer.

At Commercial Finance Network, we help you get fast, flexible and low factor rate MCA offers from some of the most experienced and trusted specialist lenders across the UK.

Applying is easy – just fill in this form to message us or call us on 03303 112 646 to speak to a merchant cash advance specialist.

A Merchant Loan Can Be Used The Way You Want To

Unlike a mortgage or asset finance, merchant cash advance can be used to fund any and every business requirement as you see fit. Common examples include:

  • Opening up a new location
  • Managing the daily cashflow
  • Staff salaries
  • Funding new purchase orders
  • Refurbishments
  • Advertising and marketing
  • Purchasing new equipment
  • Investing
  • Paying off other loans

Make Merchant Cash Advance Work For Your Business

Given the number of positives it brings on board, merchant cash advance is undoubtedly one of the most versatile financing tools an SME can rely on..

To know more about how an MCA can help you grow your business and take care of emergency requirements, call us on 03303 112 646. You can also apply for a merchant cash advance directly by filling in this online form.

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Personal guarantees are turning 50% of SME owners off business loans, weakening Brexit preparations

In recent years, many banks in the UK have offered increasing support to British businesses through access to finance. However, many SME owners are rightly concerned about the prospect of using personal guarantees when securing access to funding.

Taking a different viewpoint on the matter, Purbeck Insurance Services has suggested that small business owners should not be deterred by personal guarantees, and instead should seek out ways they could dampen the risk.

In a survey carried out earlier this year on 500 small business owners and directors, Purbeck found that while a staggering 49% had never taken out any business finance, 29% of respondents had typically called on their bank overdraft to fund their business.

What types of business finance have you ever taken out?

I have never taken out any business finance 49.00%
Overdraft 29.00%
Unsecured business loan 16.00%
Commercial mortgage 10.40%
Asset finance 9.00%
Invoice finance/factoring 7.60%
Other loan secured by debenture or charge 5.20%

Furthermore, a significant 12% of small business owners claimed to have decided against using business loans to fund their organisations as they included a personal guarantee.

Todd Davison, director of Purbeck Insurance Services, explained: “Our findings suggest that many small business owners could be looking at external finance for the first time in readiness for Brexit. It’s important they seek independent advice and consider Personal Guarantee backed finance as part of their options as they can seriously reduce the risk of these types of loans.

“As well as taking Personal Guarantee Insurance, they can also share a Personal Guarantee with fellow directors of the business, and negotiate which part of the loan is covered.”

The company’s personal guarantee insurance is an annual insurance policy that provides SME directors with insurance in the event their business lender calls in the personal guarantee, provided by the directors as part of raising business finance.

In an effort to help mitigate risk for small business owners considering opting for a business loan including a personal guarantee, Purbeck offered several tips including:

Negotiate a time limit for the Guarantee and a cap on the amount;

Educate yourself about the risks, whether you can afford to take them and always seek legal support;

Consider splitting the Guarantee between directors;

Know where your responsibilities for the Guarantee begin and end – is it loan specific or does it cover all future loans that the lender may provide?

Remember that if you have signed a Personal Guarantee for another business loan they are cumulative;

Agree terms so that the lender seeks settlement from company’s assets before enforcing the Guarantee

Confirm all points of agreement intention and expectation in writing with the lender.

Consider Personal Guarantee insurance to protect against the risk that the Guarantee is called by a lender. This will offset any outstanding obligations called in under a Personal Guarantee.

Written by Miles Rogerson

Source: Asset Finance International