An SME Guide to Funding Business

Transcription

1 An SME Guide to Funding Business NAVIGATE FUNDING IN THE ALTERNATIVE FINANCE SPACE accessfunds

2 SME Guide to Business Funding Welcome to our Compendium of Alternative Finance In recent articles, we have commented on many aspects of raising funds, and have collated that information here into a series of easy-to-read guides. For more detail visit our blog. CONTENTS Introduction Alternative Finance Jargon Buster Product Choices Tips for Retail Business Merchant Cash Advances Business Loans About Us We see a wide range of applicants from all kinds of industries looking for anything from a quick cash injection, a property development fund or even long term restructuring finance. No two cases are the same, and the choice of products and lenders can make the sourcing of appropriate funding seem far more complex than it is. Applying to an alternative lender is different from approaching your bank, and using a broker should make the journey easier, and hopefully quicker too. Here are our tips that will hopefully help you gain the business funding you need. Jan M Stefanowicz Director Faseo Limited

3 ALTERNATIVE FINANCE JARGON BUSTER Alternative Finance is a term used to describe a variety of financing approaches provided by specialist lenders. The alternative finance providers include a wide bandwidth, such as peer-to-peer lending, crowdfunding and others offering products such as unsecured loans, merchant cash advances, selective invoice finance and invoice trading platforms. Specialist providers have greater flexibility than the traditional sources and can offer a more personal service and a faster turnaround. Crowdfunding, peer to peer lending and other online trading platforms relies on bringing multiple investors and borrowers together. Crowdfunding: Popular sites for SMEs include Crowdcube, Kickstarter and Seedrs. Community shares: A form of share capital used to raise investment for businesses and enterprises that benefit communities. Organisations include Microgenius and the Co-operative Community Shares Fund. Merchant Cash Advances: Where future card transactions are purchased at a factor value in advance, and usually repaid from daily card settlements, allowing for flexibility in line with sales. Short-term Business Loans: Where bank loans and overdraft facilities may have dwindled over the years, there are still plenty of lenders providing this service for SMEs at competitive rates and often unsecured. Pension-Led Funding: This involves investors lending funds from a variety of pensions accumulated throughout their working life to small businesses at favourable rates. Asset-based lending: Loans are secured against a firm s assets, or a charge over a director s personal asset.

4 Raising finance is no longer the tough process of going cap in hand and business plan in hand to your bank. Generating capital should be quick and easy, so you can get back to doing what you do best running your business. The following is a thumbnail of some of the specialist products available. More info here. ALTERNATIVE FINANCE Product Choices 1 of 3 Unsecured Short Term Finance - Unsecured business loans up to 250k can be arranged very quickly. The lender will want to ensure that you have a solid trading record having filed at least one set of accounts, and have the affordability in the company to afford the loan terms. Loans are offered for most purposes, ranging from expansion, to paying taxes or simply adding to your cash-flow to meet unexpected expenditure. Typically, the directors will sign a personal guarantee otherwise the advance is unsecured, and the loan is repayable on a monthly direct debit in even instalments. Merchant Cash Advances - These are effectively factor based advances, calculated on anticipated future credit card transactions. So long as the business (typically a high card turn-over retailer/restaurant) can demonstrate a track record of at least 6 months of sustained card sales, the lenders will buy future transactions at discount, for a one-time fee. The repayments are proportionate to ongoing sales, making the budgeting of the facility very simple. Usually the schedule is calculated so that the debt is repaid in 6-9 months. Poor credit history can be accepted with loans starting as low as 2,000. More>>

5 Secured Loans - A Collateral Backed Loan allows you to borrow money for your business, against assets (business or personal) held. Depending on the lenders terms you may be able to borrow up to 70% of the asset value and pay back over longer periods at relatively low rates of interest. You can provide property, plant, machinery; even personal assets such as watches, jewellery etc. in support of the loan. ALTERNATIVE FINANCE Product Choices 2 of 3 Spot or Invoice Finance - Factoring and Invoice discounting is a method to finance your working capital requirements by utilising the asset of your debtor book, i.e. funds owed to the business. Factoring and invoice discounting is now widely used and accepted as a viable alternative to an overdraft facility. It is also possible to factor single invoices borrow money for stock purchases against confirmed orders, as well as fund imports. Sell as many or few invoices as you wish, and get up to 90% of your invoice value upfront. Bridging - Bridging finance is a secured short term funding facility typically repayable between 6 months to 18 months. The facility can be used for a property purchase, raising money for cash flow or financing unexpected bills. Typically advances will be calculated as a function of the loan to value (LTV) or gross development value (GDV) typically in the range of 50% for land purchase or up to 70% for property and more, if additional security is offered. Whether you need a bridging loan as a chain breaking facility, or for property acquisition and development, we have access to lenders who can meet your individual requirements. You can access the money in a variety of ways: from staged payments in a development, or have 100% of the finance available immediately for purchase. More>>

6 Professional Practice - Practitioners can access funds quickly to raise substantial capital that can start, revive, or build a practice. We understand that despite the stability of your profession, cash flow in any business can be stretched due to the very nature of your work, WiP and payment cycles. No two organisations are the same, and loan requests are often wide and varied. ALTERNATIVE FINANCE Product Choices 3 of 3 Apart from the other products mentioned in this section, some specialist lenders will extend significant loans based upon case history/work in progress. These lenders understand the nature of a firm s cash flow, where for example cases may take months or years to resolve. Fixed term and revolving loan facilities can be provided and act much like an overdraft would to assist in helping the business grow and expand in advance of its invoices being settled. We work with: Accountants Dentists Opticians Architects Medical Practitioners Pharmacists Solicitors Surveyors Veterinary Practices Our lender group can generate bespoke solutions in areas such as: Professional Indemnity Insurance Funding Tax Funding VAT Funding Cash Flow Funding Capital Expenditure Expansion & Relocation Refurbishment Practice Acquisitions & Mergers

7 Ensure Customers Pay Encouraging your customers to pay in a timely manner is no less important than selling them the goods or services in the first place. Keep billing times short as your major suppliers may do to you. Many businesses are generous with terms to their clients, while being harshly treated by their own suppliers. TIPS FOR RETAIL BUSINESSES Reward the Sales Team for ROI This might seem more like a sales management tip than cash flow, but aligning the goals set for your salespeople with your cash flow plan will simplify cash management issues. They will hone their sales skills and earn a bonus from your increased gross profit. Join Trade Associations and local retail community groups. It s important to know what your fellow retailers are doing in the community and what benefits may be available. There are many millions of unused grant funds each year because businesses don t know it s available! Schedule and Predict Demands Budgeting is important. Separate your semi-fixed costs from the variable costs that may be driven by seasonality. Ensure that cash is allocated for stock or tax demands based upon sales turnover. Having a line of credit available is useful as a Plan B, if an unforeseen opportunity or eventuality presents itself. Allocate for Big Purchases Finding the right time to make large capital expenditure can be tough. Figure the amount you will need and build it into your budget and forecast. This gives you an overview of your capital spending and can help determine if you are spending appropriately for your business income. Many readily available finance products are available today to help spread the cost of growth and expansion, without depleting your cash. Merchant Cash Product works hand in hand with your daily sales so that you never need to worry about meeting a fixed monthly payment if your turnover fluctuates.

8 A Merchant Cash Advance (MCA) is fast becoming a FLEXIBLE way for retail businesses to access funds. If you have been trading for at least 6 months and have built up strong credit/debit card sales volumes, you can benefit from funding that is quick and simple to obtain. And there is no need to change banks or acquirers! MERCHANT CASH ADVANCES How it Works An MCA allows you to raise capital for your business by selling the anticipated future card sales for a discount. The maximum advance you can get is generally equivalent to between % of the average monthly turnover you put through your card machine. So long as you are turning over an average of 2,000 a month in card sales, you should be accepted. Discount Fees It is always important to understand how much discount you are paying for a facility. In this representative example we are discounting a future transaction value calculated at 30,000: Amount of funding Agreed: 30,000 Future Discount 20%: 6,000 Advance Received: 24,000 Repayment Plan You agree from the outset to give a percentage of every future debit/credit card sale towards repaying the agreed amount of funding before discount. The simplicity of this product is that you repay at the pace your business grows. Because repayments rise and fall with your sales, you ll never need to worry about being short at the end of the month. No Security Required This is a completely unsecured facility, though most lenders will ask for a personal guarantee from the business owner. Credit Scores A Merchant Cash Advance is based on your business s trading record and your anticipated ability to repay as illustrated by your debit/credit card sales.

9 As an independent broker regulated by the FCA we work with both regulated and unregulated products, but approach our work in the same manner with full disclosure and transparency. BUSINESS LOANS Preparation Know what you need and why - Make sure you are able to explain clearly why you need funds, and how it will bring value to the business. If you are just looking to prop up the business, the lender will examine your balance sheet and question your business plans more deeply. If you are a property investor or developer, know your key cost factors and determine the GDV. Explain the timeframe and how you will make profit and in what time. Know how much you can afford you need to know how you are going to make money! Cash is King - Review your cash-flow. There are interest only offers, roll-up, compounding and routine amortisation of the debt payment products available. If you are a seasonal business, or a sole contractor, you may need to provide trading agreements or contracts to demonstrate your annual business. Know how you plan to exit the facility either by repayment or lump sum. Decide on the best product and terms - Unsecured short term funds; a bridging loan; or a longer term secured (which can be a mortgage or debenture) facility. Unsecured loans reflect the higher risk, but tend to only charge interest for the borrowing, with no exit penalties. Bridging and secured lending may take longer, and are likely to carry more costs and exit fees, but will probably charge a lower interest rate reflecting the risk profile. Provide evidence - Remember, these lenders do not know you as well as your bank, but maybe unlike your bank, they are keen to serve your financial needs! They must also satisfy themselves that your business can support the facility and manage the repayment of the debt. We recommend that you take independent legal advice before entering any credit agreement

10 Faseo Limited accessfunds As a fully independent broker, dealing with unregulated AND regulated business borrowing, we have a comprehensive understanding of lending and work with a number of top funders. Based in the Midlands, we cater to the entire UK business community. Most of our clients are small business owners, property investors and local or regional entrepreneurs. We work with any business that has typically traded for a year or longer. There are many more choices available now in terms of products and lending sources, and we are here to help guide you through the maze, and find the right funding vehicle to meet your needs. We place lifelong relationships at the core of our values, so with us in your corner, you will have access to someone who wants to listen and act on your behalf. We are a broker not a lender. We recommend that you take independent legal advice before entering any credit agreement Faseo Limited 2017 accessfunds is a trading name of Faseo Limited. Company Number: Data Protection (ICO): ZA Registered Office: Carlton House, 5 High Street, Higham Ferrers, Northamptonshire, NN10 8BW Authorised and regulated by the Financial Conduct Authority Firm reference number: accessfunds is authorised and regulated by the FCA in respect of consumer credit broking activity Our broking to limited companies, incorporated partnerships and unincorporated partnerships of three or more is not regulated by the FCA Contact: Web: Voice: Apply