Marijana No Comments

Assessing Your Business Funding Options

Whether you’re a start-up, growth stage or established business, there are a number of external funding options available to you. Whether it be a short-term working capital injection, a long term growth agenda that needs financial backing, or a large asset purchase; there may be more funding options than you might think.

Selecting the correct source of finance for your business will require a number of key considerations, depending on your business needs and circumstances;

  • Is it just money that your business requires? Would your business benefit from the additional expertise of an equity investor?
  • How much funding does your business need?
  • Why does your business need the funding? Is this a short term or a long term requirement?
  • How much can you reasonably afford to borrow and what are your preferred payment terms?

Asset Financing

Finance the purchase of new machinery or equipment via an asset finance arrangement, allowing you to spread the cost of the purchase over an agreed time period. Monthly repayments of principal plus interest gives a distinct cash flow advantage to your business. You can also borrow funds against assets which you currently own, where your existing assets may or may not act as direct collateral against the loan value.

Bank Financing

Bank Loans – Commercial bank loans allow your business to borrow a sum of money in return for regular repayments of principal plus interest. You’ll achieve the best interest rates when you’re able to secure the loan against assets within the business. Though, if you are unable to do this, bank loans are still available, just at a slightly higher interest premium.

Invoice Financing – The ability to recover money tied up in outstanding invoices. In return for a percentage of the invoice value, the financer will pay the invoice value upfront. This gives a distinct cash flow advantage as you will not need to wait 30/60/90 days before receiving the cash from customers.

Business Overdrafts – A short term funding option giving you access to extra funds, typically for working capital purposes. Interest rates are based on your ability to repay the overdraft and are typically slightly higher than that of a bank loan.

Crowdfunding

Crowdfunding, whilst not suitable for all businesses, gives the user access to a large pool of would-be investors who may only be able to invest a small amount of money in return for shares in the business. The strength of the crowd means that you can access your required funding amount via a large number of investors.

Angel Investors                                 

Equity financing may be your preferred financing option. Angel investing is a way of private investors investing their own money in return for an equity stake in your business. Like Dragons Den, you may have the option of working with a solo investor or a group of investors. Angels may take an active role in your business and can be a useful source of business knowledge, mentoring and contacts. There are many tax advantages for Angels such as Enterprise Investment Scheme and the Seed Enterprise Investment Scheme. It is worth finding if your business is eligible as this can help attract angels to invest.

Venture capital and private equity

Both venture capitalists and private equity companies will hope to invest in your business, assist in accelerating your growth, and then exit the business having made a profit from the appreciation of the value of the business. Private equity tend to invest in more established businesses, whereas venture capitalists try to identify early stage companies with high-growth potential.

Source: Business News Wales

Marijana No Comments

Invoice financing reaches record high in UK

Figures from finance and banking trade association UK Finance have shown invoice financing has reached a record high of more than £22 billion.

The figures showed an increase in invoice finance to businesses in the third quarter of 2017, with a year-on-year rise of 13 per cent.

Growth

A number of invoice financing firms have driven growth in the invoice finance and asset-based lending sector. Global electronic invoicing firm Tungsten Network Finance announced its total originated invoice outstandings have reached a record £54.5 million. This is up from 89 per cent of £28.8 million in October last year.

Despite the positive figures, there are concerns about how negotiations over Brexit will affect invoice finance levels, with research from tech services company Equiniti showing a connection between the confidence of businesses when borrowing and economic fluctuations in the UK. Figures from the analysis showed declines in GDP growth have had a knock-on effect on the confidence of businesses when it comes to invoice borrowing.

Encouraging

Commenting on UK Finance’s figures, UK Finance Director of Invoice Finance and Asset-Based Lending Matthew Davies said there is increasing understanding among businesses of all sizes of how invoice finance and asset-based lending are able to support them as they grow. It’s encouraging that a significant proportion of the sustained increases in lending recently is helping to boost exports.

However, he added  more funding could and should be provided through invoice finance, and called for the UK Government to bring forward long-awaited legislation to provide smaller businesses in particular with access to much-needed capital.

Source: LSBF

Marijana No Comments

Loan rejection is a big issue for small businesses – the UK government’s Bank Referral Scheme needs an overhaul

Just over a year on from its launch, the UK’s much-vaunted Bank Referral Scheme hasn’t quite delivered in the way that many were expecting.

As the year races to a close, it’s worth reflecting on the scheme’s limitations as well as the things it has got right since its inception in November 2016.

On balance, the scheme has made some progress against a backdrop of serious economic turbulence and political uncertainty.

2017 has proved to be a trying year for many businesses, particularly SMEs. According to the FSB, the cost of doing business for small firms is now at its highest level since 2014.

Business owners also face the added administrative burden of the government’s workplace pension deadline and the prospect of reporting their tax commitments quarterly, under the government’s Making Tax Digital initiative.

On top of that, the Bank of England’s most recent loan statistics make dismal reading for the nation’s SMEs. Lending to small businesses fell by £0.4 billion in October, increasing the need for the government to provide a robust response to support the fabled ‘backbone of the economy’.

To date, the Bank Referral Scheme has made some progress towards finding a solution to this lending deficit, but could go much further.

Launched 13 months ago, the scheme aims to help businesses that have had loan applications rejected by a number of banks – by instead funneling their cases to three alternative finance platforms.

In August a temperature test of the scheme’s efficacy was taken. It found that just 2.8% of the 8,100 businesses referred through the scheme were ultimately able to draw down finance – that’s £3.8 million lent to small businesses over the course of nine months.

This is proof that the scheme is indeed working, but at a markedly slower rate than expected.

This is fundamentally due to issues in the scheme’s delivery. When the BRS was first being discussed by the Treasury, several options about how rejected funding requests would be dealt with were on the table, before the government settled on the three – now four – finance platforms that the scheme uses today.

By referring small businesses to these platforms, the government essentially overlooked some of the main issues that SMEs face when seeking funding.

First and foremost, no small business’s needs are the same, which is why there is no off-the-shelf financial product in the commercial sector – something which the scheme fails to take into consideration.

Secondly, awareness of the funding options available to small businesses has hamstrung market competition. The CMA found in May 2016 that 90% of SMEs get their business loans from the bank where they have their current account.

The Bank Referral Scheme was initially set up to redress this lack of awareness among small businesses of the finance options outside their main bank, but instead of widening the playing field, the scheme has seemingly only served to channel rejected loans into another bottleneck.

In 2015, before the BRS was introduced, 324,000 small and medium-sized businesses sought a loan or overdraft; of which a quarter (26%) were initially declined by their bank, but only 3% of those who were turned down were referred to other sources for help.

In the face of such poor awareness among businesses of the other options available to them, the scheme was always going to have its work cut out. In the past, small businesses have been rejected for funding and then simply not known where to turn next – the scheme does little to fundamentally redress this feeling of being caught in the system.

Representatives of the scheme have tried to explain away its low lending rates by saying that a large number of small businesses don’t have fully formed business plans, so lending to them represents too much of a risk. That may well be true, but a large part of what sector specialist brokers do is work with brands to flesh out their proposition.

The scheme, with its ‘sausage machine’ approach, doesn’t seem to have the capacity to do this effectively in its current form. All too often this means start-up founders bristling with ideas may well fall at the first hurdle – with no apparent structure to hold them up, these brilliant ideas could well simply fade away.

If the government really does intend to champion small businesses, it needs to create a supportive system that incubates start-ups, nurturing ideas and helping provide the finance they need to grow.

This is proof positive that fresh tack is needed. The cleanest approach would be for the Treasury to expand the scope of the scheme, opening rejected loan applications to brokers.

It’s patently clear that small businesses need an element of guidance when it comes to seeking out lending and that an automated approach isn’t fit for purpose.

Independent commercial finance brokers and their lenders are well set-up to do this and often are able to advise SMEs and start-ups about the type of finance they might need, as well as helping them turn their business ideas into full-blown actionable plans.

Only when this guidance is translated to the market will the scheme truly start to work in a way that benefits the entire small business community.

Source: Asset Finance International

Marijana No Comments

Cash flow biggest concern among UK SMEs

SMEs in the UK are increasingly concerned about cash flow, with 69% saying it is a key worry.

A market study carried out by Barclaycard showed that around one in five business leaders worry about cash flow ‘always’, while 41% are more worried about cash flow than 18 months ago.

More than one-third (38%) say they expect their level of worry about cash flow to increase over the next 18 months.

The research points to a widespread requirement for financial services, including invoice finance, to smooth out peaks and troughs in business income.

This is particularly the case in sectors which suffer from delayed payments for services, including construction.

Recent analysis by Funding Options, the online business finance supermarket, found that businesses in the UK construction sector have been hit by a leap in payment delays, with invoices taking an average of 69 days to be settled.

Slow payment of bills is a major reason why the construction sector has such a high number of insolvencies; 2,557 construction firms entered insolvency during 2016.

Despite the potential benefits of using finance, fewer than one-third of UK companies say they have used asset finance or plan to use it in the next year.

Niche bank Cambridge & Counties Bank found only 26% of companies surveyed said they were planning on using asset finance over the next 12 months.

Instead, most SME owners have invested personal funds into their companies to avoid borrowing money.

Hitachi Capital Invoice Finance looked at SME attitudes to borrowing and found that 72% of business owners have invested their own funds in the past year, with eight out of 10 using personal savings, around a quarter using credit cards and 12% using overdrafts.

For new start-up businesses, 91% of owners have invested their own money, compared to 69% for more established companies.

The research showed an aversion to borrowing money, with only 17% saying they didn’t mind sourcing finance to fund their business.

The main reason for not wanting to borrow money is that companies want to owe out as little as possible (54%).

Source: Asset Finance International

Marijana No Comments

Lender clears £13.2bn of government loan repayments

The company behind Bradford and Bingley and Northern Rock Asset Management has paid back £13.2bn in government loan repayments.

In its six-month results up to 30 September, Bingley-based UK Asset Resolution said that of the £13.2bn repayments, £11bn was from its Financial Services Compensation Scheme debt. The company said that 76% of its government loans have now been repaid.

As part of the plan to repay the FSCS loan, UK Assest Resolution completed the sale of two separate B&B asset portfolios to Prudential and funds managed by Blackstone and launched a further asset sales process that, subject to market conditions and value for money, is expected to repay the loan in full.

Underlying pre- tax profit reduced by 41% to £238m. Mortgage accounts three or more months in arrears, including possessions, reduced by 9% since March 2017 bringing the total reduction to 89% since formation.

Ian Hares, chief executive, said: “In the first half we finalised a major sale of assets and, subsequently, we have launched the next stage of the asset sales programme designed to repay the remaining FSCS debt. These are major steps towards realising our objective of reducing the Balance Sheet while continuing to maximise value for the taxpayer. It is pleasing that we continue to see high levels of service delivered for our customers.”

It was in April that £11bn of the FSCS loan was repaid using the proceeds received from the sale of two separate B&B asset portfolios to Prudential and funds managed by Blackstone. In October, a further asset sales process was launched will enable the repayment of the remaining £4.7bn of the FSCS loan. The transaction is expected to complete during the first half of the 2018/19 financial year.

Since formation in October 2010, the UKAR Balance Sheet has reduced by £94.7bn, including £40.9bn of customer loan repayments and £27.2bn of asset sales, which have facilitated the repayment of £57.5bn of wholesale funding and £36.8bn of government funding.

As at 30 September, lending balances stood at £18.2bn (FY 2016/17: £19.5bn).

Statutory profit reduced to £216.8m from £480.4m reflecting the declining mortgage book, £43.5m additional provisions for PPI claims and the prior year benefiting from a £51.0m profit on sale of loans and an insurance recovery of £50.0m in relation to remediation losses incurred by NRAM in 2012.

The number of mortgage accounts three or more months in arrears, including those in possession, reduced by 9% from 4,617 at March 2017 to 4,196 at 30 September 2017. The total value of arrears owed by customers has fallen by £2.5m from March 2017 to £35.2m, a reduction of 6.6%. This reduction is a direct consequence of proactive arrears management coupled with the continued low interest rate environment.

In total, UKAR has 139,000 customers (FY 2016/17: 148,000), with 149,000 mortgage accounts (FY 2016/17: 158,000) and 32,000 unsecured personal loan accounts (FY 2016/17: 35,000).

The company said that the majority of these loans continued to perform well with more than 93% of mortgage customers up to date with their monthly payments. In addition, UKAR continues to provide oversight of the 98,000 accounts (56,000 customers) sold to Prudential and Blackstone as part of an interim servicing arrangement.

Source: The Business Desk

Marijana No Comments

Distiller secures finance to acquire historic Rosebank site

IAN MACLEOD Distillers has secured a funding deal worth £80 million, revealing that the finance will be used to underpin its recently-announced acquisition of Falkirk’s historic Rosebank Distillery.

The Broxburn-based distiller, which owns the Glengoyne and Tamdhu single malts, said it will also use the loan package to drive its organic growth ambitions.

The asset finance facility, which has been jointly provided by Bank of Scotland and PNC Business Credit, is secured against the distiller’s whisky stocks. Its most recent accounts show that the value of stock held by the firm stood at £76.5m at September 30, up 14 per cent on the year prior.

As part of its new funding deal Bank of Scotland will provide Ian Macleod, which acquired Edinburgh Gin last year, with day to day banking services, including a £250,000 overdraft facility.

It comes shortly after the distiller announced that it is set to restore production at Rosebank Distillery, which has been silent since 1993.

Ian Macleod has agreed a deal to acquire the stock and trademark from Diageo, while securing a separate agreement to purchase the site from Scottish Canals, subject to planning consent. Rosebank Distillery sits on the banks of the Forth & Clyde Canal.

Mike Younger, finance director at Ian Macleod Distillers, said: “Bringing the iconic Rosebank distillery back to life is a big project, and one that we’re incredibly excited about.

“We are very pleased that we now have a funding package which allows us to both rebuild Rosebank and fund the general expansion of the business.

“Asset based lending is ideal for us, as it provides highly flexible funds secured against our appreciating maturing whisky stocks.”

Source: Herald Scotland